Housing starts in 2008 are expected to be 36 percent lower than 2007 levels, creating three straight years of declines. According to a recent Portland Cement Association (PCA) Economic Research report, the mix of weak economic conditions, tight credit conditions, and tepid sales are causing huge housing inventory overhangs that must be cleaned up before housing construction can begin its recovery.
"Despite large home price declines and improved affordability, sales remain sluggish and offer little hope that the inventory glut will be worked off anytime soon," says PCA Chief Economist Ed Sullivan. "The economic environment remains weak, being dragged down by high energy costs and weak employment fundamentals."
Sullivan says current home inventories stand at a 10.5-month supply, more than double the 5-month supply that normally accelerates start activity. Continual cutbacks in starts and marginal gains in sales are expected to be more than offset by increases in housing foreclosures that will be added to the market’s inventory in 2008 and 2009.
PCA projects an additional one percent start decline in 2009, with recovery to take place in 2010.
Even then, the onset of recovery will vary among regions and states. States that fully participated in the housing boom, like California, Arizona, Nevada, and Florida, will have a disproportionally high number of defaults and foreclosures and even more delayed housing start recoveries.