Subprime Shake-Up a ‘Nightmare’ for Home Builders
Source: Mortgage Banking
Publication date: June 1, 2007
According to Jim Classman, senior economist for New York-based JP Morgan Chase, although the severity of the housing downturn has been worse than he had initially predicted, his fear of free falling home prices wrecking the housing sector and dramatically slowing down consumer spending hasn’t materi alized. Instead, he said, the subprime mortgage shakeout has resulted in a home-price correction.
“The subprime mortgage market was an important vehicle for financing a lot of new-home construction. [As a result], it’s hitting home builders harder than the broader market,” said Glassman.
Glassman predicted that “most of this nightmare” for home builders will be over by this Christmas.
NAHB Chief Economist David Seiders noted that home builders remain con cerned as to how many new homes will be returned to the market by overextended subprime borrowers, as well as the extent to which credit tightening for subprime borrowers will translate into across the-board tightening.
Following market adjustments in the wake of subprime market developments, NAHB has forecast housing starts to total 1.455 million for 2007, a nearly 20 percent decline from the previous year, but starts in 2008 will increase 5 percent to 1.528 million.
Single-family starts, predicted Seiders, will post a 21 percent decline at 1.163 million starts in 2007, but will also see an increase of 5.8 percent to 1.23 million in 2008.
The bad news, according to Nariman Behravesh, chief economist for Global Insight Inc., Lexington, Massachusetts, is that the housing market’s correction will extend into mid- or even late 2008. The good news, he said, is that it hasn’t had much of a negative effect on consumer spending or spillover into the rest of the economy.
“Yes, there is a big problem with the subprime market-but we will be able to withstand it, and the financial system will be able to absorb it,” said Behravesh.
However, Mark Zandi, chief economist at Moody’s Economy.com, West Chester, Pennsylvania, said that the “stunning” erosion in mortgage credit quality is quickly becoming a significant problem in the already fragile housing market, and that it is a threat to the economic expansion.
Even as the economic expansion is expected to remain intact, the mortgage meltdown has raised the odds of recession through the middle of 2008 to as much as 1-in-4, according to Zandi.
“The housing correction is now almost 2 years old, and it still has a long way to run,” he said. “Prices are down about 4 percent, and I expect another 4 percent to 6 percent drop. Home prices at the end of 2008-at the end of the correction-will be back to where they were in 2005.”
Copyright Mortgage Bankers Association of America Jun 2007
(c) 2007 Mortgage Banking. Provided by ProQuest Information and Learning. All rights Reserved.
“Age is no better, hardly so well, qualified for an instructor as youth, for it has not profited so much as it has lost. One may almost doubt if the wisest man has learned anything of absolute value by living.”
-Thoreau
Replies
Wow rez, do you search for bad news or just come across a lot of it. Its like doom and gloom posts. DanT
I would think the small remodeling contractor who does kitchen and bath work would be just fine thru all of this. If all of your customers up and move to new subdivisions then you need to be worried, and I suppose if a new home glut forces those subs down to bargain prices then it may become an issue, but I doubt it, I think your niche is about perfect for this and pretty much any scenario.
I agree for the most part. We live in a small town north of Columbus. A lot of new construction guys drive to Columbus to work. When the new build goes down they come home and become remodelers. So it dries up some work. But we are still booked 5 weeks out currently and don't feel alarmed unless we are under 4.
We are seeing smaller scale work even for us. But it is actually more profitable but requires more management and office work as you need a lot more of it to keep the boat afloat. DanT
Just reporting the news is all. Sometimes ya get lucky and read something positive but the world is geared toward the negs.
don't be negged
"Age is no better, hardly so well, qualified for an instructor as youth, for it has not profited so much as it has lost. One may almost doubt if the wisest man has learned anything of absolute value by living." -Thoreau
don't be negged
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I've never met a man that was owed as much as he thought he was.
And in other countries sub prime lending and low rates are building a robust middle class.
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You can find people on both sides of the forecast.
Don't worry, Congress and the bank regulators are hard at work investigating who left the doors open on that barn. The horses left long ago and taxpayers will be handed the shovel...
Ya, it can be amazing what we have as the human race managed to develop in the way things are done. Processes and constantly changing intangible techniques defining the how-to workings of finance and all it entails.
be other peoples money
"A man is rich in proportion to the number of things which he can afford to let alone." -Thoreau