Housing Market Slows to Plateau

The nation’s housing market continues to exhibit signs of a slowdown, which is expected to moderate as the balance of 2006 unfolds, analysts reported last month.

Existing-home sales

The housing market is “stabilizing,” with little change in existing-home sales expected over the balance of the year, according to the National Association of Realtors. David Lereah, chief economist for the Washington, D.C.-based NAR, said last month that key housing indicators are leveling off. “New-home sales and housing starts have been fluctuating, so the overall market is stabilizing,” Lereah commmented. Although resales will be fairly steady over the balance of the year, declines since last fall mean annual totals will be lower this year, he noted, adding that existing-home sales are forecast to fall 6.5 percent, to 6.61 million units, in 2006 — the third highest on record after 2005 and 2004.

Housing starts

The current downswing in housing starts and permits is expected to continue for several months, although solid economic fundamentals, a favorable financing environment, and widespread use of sales incentives “will limit the degree of decline,” the chief economist for the National Association of Home Builders said last month. “Housing demand has been weakening as affordability has deteriorated and investors/speculators have pulled out of the market, and builders are adjusting their production levels accordingly,” observed NAHB chief economist David Seiders. Issuing his comments in the wake of a 2.5 percent July dip in housing starts, Seiders said that the NAHB is currently projecting a 9.4 percent decline in total housing starts for 2006, with single-family starts off by 10.8 percent from their record level in 2005. |

Remodeling Activity

Slower Activity Reported During the Second Quarter of 2006

Remodeling activity slowed in the second quarter of 2006, according to the National Association of Home Builders’ Remodeling Market Index (RMI). The current market conditions index decreased from 48.1 to 45.6, and future expectations moved from 48.9 to 43.5.

The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number over 50 indicates that the majority of remodelers view market conditions as improving.

“We expected lower sentiment as the overall housing market slows, and the second-quarter numbers certainly reflect that,” said Remodelors Council Chair Vince Butler, CGR, CAPS, GMB. “However, the remodeling market should perform relatively well as the overall housing market slows.”

The RMI component for owner-occupied units moved from 53.8 to 49.0 in the second quarter, while the component for renter-occupied units increased from 36.7 to 39.0 during the same period. In the future expectations index, the component for owner-occupied units moved from 53.2 to 47.2 and the renter-occupied component decreased from 30.4 to 28.8. Rental-property remodeling accounts for a third of all remodeling expenditures.

“Remodeling is less volatile than new home construction partly because nearly half of all expenditures represent nondiscretionary maintenance and repair projects,” said NAHB Chief Economist Dave Seiders. “The average age of the housing stock is 32 years and rising — well past the time when major home systems need replacement. Supported by more than $11 trillion in home-owner equity, the fundamentals of the remodeling market will remain strong for the foreseeable future.”

Insurance Regulation

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