Tuesday, July 26, 2011

Residential New Construction Prognosis

U.S. home building likely won't return to normal levels until 2014, and then only if housing prices rebound and foreclosures drop sharply, research from the San Francisco Federal Reserve Bank showed.
Continued weakness in the housing market is dragging on the U.S. economy, which is losing ground under the weight of 9.2 percent unemployment and declining consumer confidence.

Research released by William Hedberg, a San Francisco Fed research associate, and John Krainer, a senior economist there, indicate the drag from housing is likely to continue for years.
"Our analysis suggests that even an unusually strong period of real house price appreciation would not, on its own, lift starts to long-run average levels," the researchers wrote in the regional Fed bank's latest Economic Letter. "A significant easing of the drag on housing stemming from the inventory of foreclosed homes is also needed."
Foreclosures would need to drop by 50,000 homes per quarter starting in 2012, the researchers found, and home prices would need to stop falling by 2013 and then begin to rise, for housing starts to return to pre-2004 levels by 2014.
Such a scenario is optimistic, they said, because the inventory of foreclosed homes is still rising, and the 50,000 unit-per-quarter decrease would match the sharp pace of increase in foreclosures when they began in 2006.
Article from Reuters.com