A recovery in housing starts activity will likely be preceded by a meaningful recovery of the sales pace, followed by a reduction in inventory. According to a recent PCA Economic Research report, the conditions needed for this process to begin will not be in place until mid-2010.
Although resets of traditional subprime mortgages are expected to reach an apex in mid-2009, exotic mortgages such as those requiring little income documentation or adjustable mortgages will experience a dramatic increase in resets from mid- 2009 through mid-2010. Edward J. Sullivan, PCA chief economist, predicts this second wave of toxic resets will accelerate foreclosure rates and add to the large number of foreclosed homes in a crowded market.
“Housing construction activity cannot begin until sales recover,” stated Sullivan in a press release.
“Increased foreclosures, coupled with deteriorating labor markets and tight credit conditions, will delay significant sales activity until mid-2010. Improvements in housing starts are not expected to be significant until 2011.”
Although the housing recovery bill, along with bank efforts to rewrite toxic mortgages, will mitigate the magnitude of potential defaults and foreclosures during the next 18 months, PCA expects a weak labor market and declining home prices will increase the number of foreclosed properties added to the housing market inventory.
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