Housing Starts for November 2008

1. Housing Startsfor November 2008 December 16, 2008

2. The Housing Market Housing permits and starts were already headed lower when the September credit crunch hit. Starts are now at record lows. Lawmakers are beginning to talk about programs that could lift home sales and stem the decline of home prices. Homes are now more affordable – prices are lower and so are mortgage rates and this could set the stage for a home sales rally. Unfortunately, banks continue to be stingy and there is a continuing lack of credit for first time buyers in particular. Many buyers have no sense of urgency in spite of lower interest rates and lower prices. The Federal Reserve recently announced plans to buy $600 billion in mortgage-related securities from Fannie and Freddie—the Government Sponsored Entities Purchase Program. This should begin by February of 2009. The Treasury is considering aiming for a 4.5% interest rate on 30-year mortgages by buying mortgage-backed securities, similar to the plan by the Federal Reserve. If the Treasury goes through with this plan, contract rates may fall further. This could reduce the rising tide of foreclosures and keep more people in their homes. In addition, the new administration could spend a significant amount of remaining $350 billion TARP fund on a large mortgage rescue plan to stem foreclosures. All of this is adding up to lots of help for housing in the second half of 2009. Lawrence Yun, NAR chief economist: “We have favorable affordability conditions, but we need more than that to give buyers with jobs the confidence they need. This is why a housing stimulus is so critical now to encourage more buyers to draw down the inventory and stabilize home prices. Without home price stabilization, there will not be an economic recovery.”

3. More Comments Economy: The National Bureau of Economic Research has declared that the U.S. economy has been in recession since December, 2007. Recessions typically last about ten months and it looks like this one could be unusually long. Economy.com is predicting an end to the recession and turnaround in September, 2009—a 21 month recession. In the short term, we expect the U.S. economy to deteriorate across most industries and geographies. Financial panic and a credit crunch have dampened consumer and business confidence. The outcome will most likely be higher unemployment and weaker consumer spending. Home prices may continue to fall, perpetuating the cycle. The U.S. economy is expected to rebound in the second half of 2009. Government stimulus programs usually take six months to a year to work and some of the 2008 financial stimulus should begin to pay off in the first half of 2009. The low price of gasoline should provide consumers with billions in spending power. A middle class tax cut is expected in 2009 and this will also help consumer spending. In addition, the government will most likely launch a new stimulus package in 2009 in an attempt to jump-start the economy. With these assumptions, the low point for both housing and the overall economy is expected to be the fourth quarter of 2008 and the first quarter of 2009. Nonresidential Construction: The new administration is talking about public works on a vast scale. While the projects have not been defined, the following have been mentioned: streets and highways, building retrofits, expansion of mass transit and rail, improving the electrical grid as well as wind and solar power. These projects may help wood products directly in the areas of concrete form and glulam power poles.

4. U.S. Housing StartsNovember Annual Rate: 625,000.

5. Single Family Housing PermitsNovember Annual Rate: 412,000

6. Quarterly Housing Starts &Quarterly Structural Panel Production

7. Structural Panel DemandFrom U.S. Single-family & Multifamily

8. New and Existing Home SalesSeasonally Adjusted Annual Rate

9. New Home InventoryUnder Construction + Completed

10. Home Inventory When home buying weakens, the inventory of homes for sale usually increases. The total now stands at nearly 5 million homes—mostly existing homes, not new homes. This compares to just over 3 million homes in 2005, a more historical average number. This year, the inventory of new homes is shrinking and is over 100,000 less than one year ago. The inventory of existing homes is remaining high—nearly 4.5 million. The big puzzle is when will home sales pick up and when will the inventory get back closer to 3 million. When home buying weakens, the inventory of homes for sale usually increases. The total now stands at nearly 5 million homes—mostly existing homes, not new homes. This compares to just over 3 million homes in 2005, a more historical average number. This year, the inventory of new homes is shrinking and is over 100,000 less than one year ago. The inventory of existing homes is remaining high—nearly 4.5 million. The big puzzle is when will home sales pick up and when will the inventory get back closer to 3 million.

11. Months Supply New & Existing Homes for Sale

12. Home Prices – U.S.Median Prices for New and Existing Homes

13. 30-Year Weekly Average Mortgage Rate

14. Housing Affordability

15. NAHB/Wells Fargo Housing Market Index

16. U.S. Housing ForecastSingle Family & Multifamily Only*

17. NAHB Remodeling Market Index*

18. U.S. Nonresidential ConstructionOctober Annual Rate: $643.8 Billion

19. U.S. Nonresidential ConstructionYear-Over-Year % Change

20. Lodging, Office & CommercialMany structures are low-rise wood buildings.

21. Lodging, Office & Commercial ConstructionYear-Over-Year % Change

22. ManufacturingIndustrial Production Index Less Mining & Utilities

23. Number of U.S. Jobs Created/LostSeasonally Adjusted

24. U.S. Consumer PricesTotal Inflation and Core (less food and energy)

25. Consumer Sentiment

26. Consumer Spending

27. U.S. GDP

28. Canada GDPReal Annualized Q/Q Percentage Change

29. The U.S. has been in recession since December of 2007 The informal definition of a recession is two consecutive quarters of decline in real (inflation adjusted) GDP. The official definition of recession, as recognized by the U.S. government, is provided by the National Bureau of Economic Research (NBER). It’s a private organization in Washington, D.C. that started in 1920. The U.S. Department of Commerce’s Bureau of Economic Analysis publishes NBER’s business cycle turning points and considers their dates “official”. The NBER’s Business Cycle Dating Committee defines recession as, “…a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.” NBER says it “waits until sufficient data are available to avoid the need for major revisions. As a result, we tend to wait to identify a peak until many months after it occurs.” According to NBER data, the last expansion started in November of 2001 and peaked in December of 2007—when the current recession began. The last recession was from March through November, 2001. For more information: www.nber.org

30. Information from Dowell MyersAPA’s 2008 Annual Meeting Speaker Dowell Myers, a professor of urban planning and demography at the University of Southern California, warns that the retirement of boomers over the next two decades is likely to depress house prices in many areas. As boomers relocate to retirement homes and cemeteries, there will be a lot more sellers than buyers in parts of the country, he says. "It's going to really mess up the housing market," says Mr. Myers. He predicts that this "generational correction" will be larger and longer-lasting than the current slump. To get a sense of the effects of aging boomers, Mr. Myers looks at the number of Americans 65 and over per 1,000 working-age people. He sees that number soaring to 318 in the year 2020 and 411 in 2030 from 238 in 2000. Many people over 65 buy homes, of course, but as they get older they become more likely to sell than buy. People aged 75 to 79 are more than three times as likely to be sellers than buyers, Mr. Myers says. In some areas, younger people will be happy to buy (and probably renovate) those boomer nests. The problem, Mr. Myers says, will be in places where lots of older people are selling and few young people are settling down. He says the effects will be strongest in the "coldest, most congested and most expensive states rather than the high-growth states of the South or West." Among the states where Mr. Myers sees downward pressure on prices within the next decade: Connecticut, Pennsylvania, New York and Massachusetts. Source: Wall Street Journal. December 2, 2008