Has the surprisingly robust housing market finally hit its peak?
Yes, judging by the consensus of most analysts at the National Association of Home Builders' construction forecast conference Oct. 19 in Washington.
Of course, that was also the same consensus they delivered last year, when they predicted 2005 would mark the apex of the housing boom. It didn't, but several market analysts are predicting that 2006 really will see the market start to cool off.
``I do think the market is peaking and sales are about as strong as they are going to be,'' said Mark Zandi, chief economist at Economy.com in West Chester, Pa.
Zandi admitted, however, that he was one of those who incorrectly predicted a slowdown this year: ``If you forecast something long enough, ultimately you will be right. I'm here as an ardent practitioner of that adage.''
Zandi predicts new housing starts will drop from 2.05 million in 2005 to 1.96 million in 2006, and then quite dramatically to 1.63 million in 2007. The National Association of Home Builders offers predictions of similar, although less dramatic slides, from 2.2 million new housing units (including mobile homes) in 2005 to about 2 million in 2007.
Government officials are concerned. Federal Reserve Chairman Alan Greenspan worries about both the increasing speculation from investors in the housing market, and the prevalence of ``exotic'' financing like interest-only mortgages that may not be sustainable, said David Seiders, NAHB's chief economist.
Those factors, and continued low interest rates, kept the market strong in 2005, Zandi and others said.
The market remains tricky to predict. Seiders noted that housing starts in September were ``dynamite,'' contradicting expectations he and others had that the market would start to soften.
Seiders said he's factored in some modest growth of about 38,000 additional housing starts a year in 2006 and 2007 from Gulf Coast hurricane reconstruction, but even with that, he expects a slowdown.
``I'm still insisting there will be a fade,'' he said.
The unprecedented damage from the Gulf Coast hurricanes is a wild card in forecasts, though.
The storms destroyed 356,000 homes and badly damaged another 900,000, which is a stunning 12 times the impact of the next-largest hurricane in U.S. history, he said. It's difficult to predict the number of homes that will be rebuilt, and when and where they will be reconstructed.
The federal government looks to be buying 20,000-30,000 new mobile, or manufactured homes, giving a slight boost to that market, he said.
But he said the government's not likely to contract for the 300,000 units initially bandied about, suggesting that the manufactured-home market will remain in the neighborhood of 150,000 units a year. That's well below its peak of 350,000 in the late 1990s, before that segment collapsed amid the fallout from ``unwise'' consumer financing arrangements, he said.
A return to a more sustainable housing market was a common theme among the speakers.
``The gains we have seen in recent years [in housing prices] are unsustainable, and those unsustainable trends always, eventually come to an end,'' said David Berson, vice president and chief economist at Fannie Mae in Washington. He said 29 of the top 100 U.S. housing markets had price appreciation of at least 20 percent last year, and none had declines, an unusual situation.
Two other economists predicted a soft landing for housing prices, with one suggesting that the risk of a bubble in the housing market is less severe than others are predicting.
Maury Harris, chief economist with UBS Warburg Research in New York, said about 10 percent of the homes in the United States are investor-owned, which is twice what is typical but not high enough to warrant particular concern.
And he said national home prices are unlikely to decline, because tax law changes have made homes more valuable and because people no longer are enthralled with the stock market as a place to park money.
Overseas investors continue to put money into the United States, because growth remains slow in Europe and Japan.
The U.S. economy faces challenges like a large trade deficit, but should be able to manage a gradual stabilization of the housing market, said David Wyss, chief economist with Standard & Poor's in New York.
Several speakers said they expect mortgage interest rates to rise, but noted that the influx of money into the United States has helped to keep them lower than they otherwise would be.
At one point, the forecast got around to materials prices. Michele Helickman, an analyst with research firm Global Insight in Washington, said PVC prices will remain tight and are not expected to drop before the end of 2006.
Other commodities, including steel and cement, will have falling prices or slower price growth next year, she said.
Slowing economic growth also plays into predictions for a softening housing market: The economists predict economic growth will fall from about 3.5 percent this year to between 3.1 and 3.3 percent in 2007. And both Zandi and Seiders said there is increasing talk in Washington about changing mortgage tax incentives, born of a feeling that the country has over-invested in housing stock.
``That is one reason why I would be perfectly happy with a market cool-down,'' Seiders said.