Slower Markets, Quicker Recovery, with Exception by Al Heavens
Housing markets with the biggest booms in 2004 and 2005 are generally expected to be the slowest to return to normal levels of activity. That's the word from the National Association of Home Builders, which adds that the markets that didn't go boom as much as, say, Miami and Boston will recover faster. The exception to this rule is, of course, the industrial Midwest -- Ohio, Michigan, Illinois and Indiana -- where job growth has been virtually nil and foreclosures are highest. The Midwest region suffered the most in this housing cycle with the lowest peak during the boom and deepest the trough during the correction, due largely to weakened economies in the region's industrial cities like Detroit and Kansas City. "Because the boom and correction cycle has largely been driven by national rather than local factors, most regions have experienced some degree of over-heating and correction," said NAHB chief economist David Seiders. "We expect 2007 to be a time of transition in most regions, with housing starts bottoming out in the early part of the year before transitioning to gradual recovery paths," he said. There are still a lot of regions waiting to reach this bottom, despite housing economists' optimism during most of 2006 that the end would be achieved by the first quarter. The weather and real estate seem to defy predicting. Just leave the house every day with an umbrella and a pre-approval, and maybe you'll get lucky. Since Seiders has always seemed to be better at prognostication that many of his peers, let's look at what his study found: South Atlantic region had varied housing experiences, with the state of Georgia and the Asheville, Charlotte, Durham, Greensboro, Raleigh and Winston-Salem metro areas in North Carolina experiencing modest declines in 2006. By contrast, many Florida markets had the hottest times, with Orlando, for example, seeing housing starts spike to 150 percent of normal activity. The West South Central region is dominated by Texas, which accounts for roughly 75 percent of its housing starts. The region had the strongest growth during the boom and has maintained the highest level of production through the correction. The region also includes metro New Orleans, which has seen its pace of housing starts emerge from its 2005 collapse to rival pre-Katrina levels. The East South Central region -- Alabama, Kentucky, Mississippi and Tennessee -- was the only area other than West South Central division to have housing production levels at the end of 2006 above pre-boom levels. In the Mountain region, Phoenix metro area rose to 149 percent of pre-boom demand in 2005 before dropping to 79 percent by the end of 2006, making it one of the most volatile markets in the nation. Las Vegas performed similarly with prices rising rapidly, primarily because of investor demand. NAHB forecasts that due to the steep corrections, these areas will grow moderately this year and next as they cope with the prices, production and investor excesses that swamped them. The boom in California, which accounts for 70 percent of the starts in the Pacific region, had something to do with investors but more to do with demand for affordable housing in the state. The NAHB said that major markets such as Los Angeles, San Diego and San Francisco are expected to experience strong gains in 2007 based on deceleration in prices and the absence of overproduction during the boom and the depth of their slowdowns in 2006. Compared with the South and West, the Northeast has experienced a fairly restrained housing cycle. Major metro areas such as Boston and New York had production levels that looked more like recovery from a slowdown earlier in the decade rather than an over-stimulated boom. Because of the fundamental health of the underlying economies, a quick recovery and a return to more normal levels of production is expected in these markets. It may be too early to predict how housing will play out, even this late in the game (first quarter is gone and the spring market is about ready to empty the bench). But from a historical perspective, if all the fundamentals, especially jobs, look good, then a housing recovery can't be all the far away. A national builder once told me that the United States was a series of smaller economies rather than just one big one, and that seems to have borne out in the way housing markets performed in 2004 and 2005. For 2008, we'll just wait and see. | 
