Housing and oil prices are down. Commercial construction and the stock market are up. It all adds up to a mundane, safe, hardly excitable phrase to describe 2007 and beyond: cautious optimism.
The housing situation is on many minds, as both construction starts and prices finally started to slow and then fall to more realistic, manageable rates in 2006. “We are in a housing market recession, but not an economic recession,” Jeremy Zirin, senior equity strategist with UBS Financial Services, told the National Ready Mixed Concrete Association in October. “We are clearly seeing a deceleration in economic growth.”
“Housing is slowing more than people had realized,” Mark Vitner, a director and senior economist at Wachovia, told the same audience. But Vitner says housing's contribution to growth in the United States “is large, but has likely been exaggerated.” That's because while home sales skyrocketed, the nation's home ownership rate fell in 2004 and ‘05. “Many sales were speculative,” Vitner concludes.
After a sluggish 2007, Zirin forecasts housing to regain a foothold in 2008. “The only way to work off all of these inventory levels is to lower prices,” he said. Similarly, Eric Belsky, executive director of the Joint Center for Housing Studies at Harvard University, told the Hanley Wood American Housing Conference in September these inventory levels will be worked off, creating an upturn in late 2007 or 2008.
Still, the housing slowdown is not being felt in all markets. Pockets of the country—much of Texas, the Mississippi Gulf and the mid-Atlantic—still showed strength, according to a U.S. Federal Reserve Bank report in October.
“Pricing strength and growth have ebbed in many parts of the U.S.,” said Pierre Villere, president of Allen Villere Partners and TCP columnist (see page 28). “Commercial and public works is picking up the slack in many markets. Florida could come back faster than many parts of the country due to public works and commercial construction.”