Forecasters Agree Housing Market Will Turn Around

Last week's annual Outlook Executive Conference: '09 Industry Forecasts and Trends included a range of speakers and forecasters with outlooks on the current economy and predictions for the 2009 housing market. While many of the reports appeared bleak, almost all of the speakers agreed that while the market is down now, it is cyclical and will come back. But, the big question on the minds of most in attendance was "when?"

The forecast, organized by McGraw Hill Construction, was held at the Capitol Hilton in Washington, D.C., October 22-23.

"The question we're trying to answer and you're trying to answer is, 'when will housing prices hit bottom?'" said Kermit Baker, chief economist for the American Institute of Architects (AIA).

However, he noted that after a recession (he called this one the worst in 50 years) the housing market typically does make a fast recovery.

"This recovery is likely to be different than past cycles, but the housing industry historically has recovered quickly," he said.

He predicted that once the recovery occurs, housing will actually hit a bigger boom than it did in recent years, and that more homebuilding will actually occur in the coming decade than in the current one.

One phenomenon to which he attributed this is trends in immigration.

"We're currently rivaling the immigration rates we saw in the early 20th century," Baker said. "As the number of immigrants continues to grow, we're seeing them disperse more throughout the United States."

Because many immigrants are in the 20-30 age range and often are starting families or have small children, Baker said, "they're very active in the housing market."

As for remodeling, he noted that it actually held strong for awhile, and even grew in recent years.

"Remodeling is approaching the size of the new construction industry," he said. "The pace of growth has hardly slowed at all during this period."

However, the down new construction market has led to less remodeling, he says, as with the tightened credit market, there are fewer homeowners, leading to fewer consumers looking to remodel. He also noted that many remodel or make home improvements right after purchasing a home, and since so few are able to purchase homes currently with the strained financing market, this has also led to a recent decrease.

"Third-quarter figures point to continued weakness in this market, though we haven't hit bottom," he said. Baker does expect the rate of the decline to stabilize in 2009 and 2010, though.

He pointed to the green market as a plus for this sector.

"There is very clear evidence that homeowners are not only buying energy-efficient homes but also are remodeling to make [their homes] more energy-efficient," Baker said.

Baker ended his presentation on a semi-positive note.

"Let me remind you, we are in a cycle and cycles correct themselves-just wait," he said.

Robert Murray, vice president of economic affairs for McGraw Hill Construction, spoke next, and he agreed that while the market appears unfavorable now, the steps the federal government has taken and other measures will lead to a turnaround-eventually.

"The basic assumption is this-that the extra steps taken to deal with frozen credit markets will be successful over time," Murray said. "It's going to take time for the U.S. economy to regain a firmer footing, though."

Murray attempted to answer the burning question as to when the markets will hit bottom, and he predicts this will occur during the first or second quarter of 2009.

"Home prices are continuing to drop about 20 percent nationally," Murray said. "They'll probably drop another 10 percent in 2009 and then level out."

However, he noted, that this year's forecast has been one of the most difficult, noting that he and his staff revised the forecast several times based on recent events.

"This was a tough forecast," he said. "This is a cyclical business … There are still pluses."

Murray quoted investor Warren Buffett in referring to what led to the downfall, the three "Is": innovators, imitators and idiots. In closing, he again brought up these words in looking to a brighter future.

"I think by the time you get to 2010, it will be time for the innovators and imitators, and hopefully the idiots will stay on the sidelines," Murray said.

Norbert Young, president of McGraw Hill Construction, ended the host of presentations with a list of what he sees as four positive indicators for the economy:

1. The powerful influence of green;
2. The growth in virtual design and construction;
3. The power of immigration; and
4. The fact that a new president soon will be elected.

Stay tuned to the December issue of DWM magazine for a full report from the forecast.

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