Housing Starts Near Bottom, Says Metrostudy

---

(News Source: Metrostudy)

(HOUSTON, TX) -- In advance of the national housing starts figures to be released Tuesday by the U.S. Department of Commerce, national housing market research firm Metrostudy has updated its forecast of starts for 2009.

"We believe that some of the recent gains in housing starts could be given back during the third and fourth quarters of this year if the current tax credits are not extended," said Brad Hunter, Metrostudy's chief economist and national director of consulting. "That said, the forecast for 2010 is for steady increases in starts.

"Starts have increased in recent months, partly because of the $8,000 tax credit for home buyers, but also because speculative inventories are down sharply for many builders, which helps tremendously," Hunter said. "Home builders need to start a home every time they sell one, just to keep speculative inventory at a normal level. Starts are likely to rebound only slowly from this point on, however, for several reasons. First, some builders in the bubble markets still are working off inventory. Second, some builders' banks are cutting off their credit even if they are current on their loans. And third, some builders are finding prices too low to be able to sell homes profitably."

Metrostudy predicts a total of 562,000 housing starts for 2009, which represents a 37.9 percent drop compared to the same period in 2008. Single-family starts are forecast at 438,000, down from 622,000, a 30 percent drop. Conducting its own count of builder starts in subdivisions, Metrostudy collects data on a much more detailed basis than the Commerce Department, starting with a 100 percent count of activity in individual projects within 256 counties comprising all or part of 84 Metropolitan Statistical Areas. The firm's latest numbers, for the first quarter of 2009, show significant variation among markets.

"Most markets have been improving since last spring, but some of the hardest-hit bubble markets have only recently started to see increases in starts. Those lagging markets will probably start to experience increased homebuilding activity in 2010," Hunter said.

"Homebuilders are still challenged by economic conditions, and also by the lack of credit from banks, but there are some positive trends," Hunter said.

• Homebuilders' sales and traffic are up, and traffic quality -- the likelihood that a person visiting a builder's model will buy a home -- is improving greatly. This trend is especially evident in California, but is evident nationwide as well. Even downtrodden Las Vegas, Phoenix, Florida and Southern California have shown significant improvement in sales per subdivision during the last several months. Some builders have been experiencing the strongest sales paces in more than two years.

• Builders' new-home inventory is now under control in most markets, although there is still a large 'shadow inventory.'

• Foreclosures are being purchased enthusiastically, but the flow of additional REO is still daunting.

In the release from the government expected Tuesday, September starts are likely to be up for single-family homes, but down for multifamily, Hunter said.

---