| While the housing market continues to decline, there is a broad consensus among economists that a rebound will occur in 2008. | |
| In order for a rebound in 2008 the housing market must first bottom out. So, simple logic dictates that if we are a few months away from the rebound then we must be even fewer months away from the bottom. | |
| "I still think we're not at the bottom in terms of housing construction," says Mark Vitner, a senior economist at Wachovia Corp. "Sales have to bottom out first. ...We haven't seen that yet. And then construction starts will probably bottom out nine months after that." | |
| If this holds true, a decline in new home construction should indicate that we are months closer to a bottoming out moving us closer to a recovery. Further, if there is a nine month lag in construction starts and if the industry will start its recovery in 2008 then simple math would place the bottom sometime prior to 2Q08. | |
| - May's numbers were mixed, but in line with expectations, and reflected weakness in the South and West, offsetting construction gains in the Northeast and Midwest. The positive message is that numbers are mixed and not down across the board. | |
| - Construction of single-family homes dropped 3.3 percent in May while apartment construction rose by 3.1 percent, another mixed signal. Historically, a hot housing market draws buyers from the rental rolls and causes a decline in apartment starts. This reversal indicates market corrections at the beginning of the manufacturing process, and as new home inventories shrink, demand will build in the coming months. | |
| - Finally, interest rates remain flat. The Fed has held their rates steady for nearly a year with no indication of sharp rises in the near future. The last thing the Fed wants to do is take the remaining breath out of housing with higher mortgage rates. | |
| Perhaps the soothsayers are correct and we are nearing the bottom and a recovery in the housing market is near. |
Rainer
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Cindy Nicholson
Cindy Nicholson
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