Housing Expected Off, But Remodeling Seen as Remaining Strong

Housing Expected Off, But Remodeling Seen as Remaining Strong

WASHINGTON, DC The moderate slowdown that economists have been forecasting for the past two years is finally at hand, and that will result in a cooling off of the housing market, according to a consensus of leading housing analysts.

However, remodeling activity is expected to hold up in 2000, as the nation's existing housing stock (with roughly 110 million homes over 20 years old) continues to age, and an emphasis on urban rehabilitation continues to surge, those same analysts predict.

Panelists at the National Association of Home Builders Construction Forecast Conference in late November here agreed that the housing market reached its peak early in 1999 a period that NAHB chief economist David Seiders described as a "glowing, almost economic heaven for the U.S." However, said Seiders, "an economic and housing slowdown in 2000 is virtually inevitable," largely as a result of moves by the Federal Reserve Board to stave off inflation by tightening monetary policy by raising interest rates, dampening consumers' desires for purchasing new homes.

Conceding that "the best of the inflation news is behind us," Maury Harris, chief economist for Paine Webber, said he expected to see the same rate of inflation this year as in 1999. Higher interest rates, slower job creation, slower productivity and a weaker stock market will slow economic growth "to a more sustainable pace."

Among the key economic and industry-related barometers forecast for 2000 are the following:

  • ┬áTotal housing production for 2000 is being forecast by the NAHB at 1.535 million units, a 7.5% decline from last year.
  • Similarly, the market for existing-home sales, which reached a record level of nearly 5.2 million units in 1999, is also expected to weaken in 2000, according to the National Association of Realtors, which says that "recent volatility in the stock market, waning consumer confidence and fears of inflation will serve as a check to home sales in the future." The Washington, DC-based NAR is forecasting that existing-home sales will dip in 2000 to just below 5 million units.
  • In contrast, U.S. expenditures for residential improvements and repairs will amount to $128.4 billion this year up from the estimated $126.7 billion spent in 1999.n Mortgage rates, now about 8% for fixed-rate mortgages, are expected to remain close to current levels for the foreseeable future.

The current economic recovery, at about 103 months, is far longer than the average recovery length since 1945 of 50 months. Analysts point out that the recent housing expansion is the longest on record and it still has a considerable distance to go before it sputters out. So even with an economic slowdown looming, the housing market should remain historically strong. "We are backing away from record levels of activity," observed Michael Moran, chief economist for Daiwa Securities America, "[but] we will still have good results [in 2000]."The reason is that underlying factors fueling market growth remain strong specifically, growth in employment and household wealth that has led to all-time-high levels of consumer confidence, which have overwhelmed the recent rise in mortgage rates.

Regional trends
Opinions vary about regional trends in the housing and remodeling markets (see related story, Page 8). "The Southwest is booming, [but] growth has slowed in the Northwest," with the South's strong expansion being driven by "a steady influx of population," notes KCMA executive v.p. Dick Titus. "The Midwest faces labor shortages and weak export markets for agricultural products, while the Northeast's economic prospects are limited by a sluggish population growth."

Economist Thomas Loy points to the Southeast as a rapid growth area, with the Northeast and Mid-Atlantic region displaying slower growth, while economist Kory Bockman predicts more of a shift to the South and the West.

However, Rhonda Moritz, a spokesperson for the National Kitchen & Bath Association, points out that the Northeast is a hot remodeling market, largely because it contains more older housing that requires work. This underlines what many analysts have identified as a major trend toward reinvestment and rehabilitation in formerly dilapidated urban areas.