Housing Collapse at Critical Point--Moves Towards Cascading Chain Reaction

May 29, 2007 (LPAC)-- David Seiders, chief economist for the National Association of Home Builders (NAHB), warned that U.S. new home construction may not reach a normal "benchmark" level of 1.85 million units per year, until the year 2011, a striking admission of the downward spiraling of the U.S. housing market.

In an interview with Bloomberg news service May 29, Seiders stated that new home construction starts occurred at an annual level of 1.53 million units in April 2007, compared to an annual level of 2.29 million units in January 2006, a fall of 33.2%. To reach the benchmark level that he posits as 1.85 million units per year, new home construction would have to rise by 21%, he said. But this is impeded by the fact that in April 2007, the national inventory of unsold homes reached 4.2 million homes, a supply of 8.4 months, the highest level since the NAHB began collecting figures in 1999. This inventory would have to be worked down, he said.

In addition, Seiders asserted that "we're still being hit pretty hard by the subprime-related mortgage market problem." He projected that defaults and foreclosures on subprime mortgages may rise cumulatively to $650 billion by 2009; that would constitute more than a third of all subprime mortgages outstanding.

Simultaneously, Standard & Poor's reported that its Case-Shiller U.S. National Home Price Index, for the sales price of existing single-family homes in metropolitan areas, fell 1.4% during the first quarter of 2007, compared the comparable period of a year earlier, the first quarterly decline in 16 years. The intensifying cutting of home prices, which produced a temporary increase blip in existing homes sales during April of this year, is increasing the mortgage crisis, as some homeowners find that their mortgage is already larger than the value of their home, and the greater the value of existing homes fall, the more difficult they will find it to sell their homes without taking a large loss.