2007: A Transitional Year for New Homes

This March, the National Association of Home Builders released a new report predicting 2007 home sales for new construction. The study revealed that the U.S. housing markets who experienced the biggest booms in 2004 and 2005 will be the last to resume normal levels of sales activity. The areas in the U.S. where growth was less dramatic will recover to normal levels sooner.

"The earlier boom in housing can be attributed largely to excess demand generated by historically low interest rates coupled with aggressive mortage lending practices, a combination that made homeownership more affordable but also attracted investors and speculators into many markets," the report said. "These factors put inordinate upward pressure on sales, prices and production. Major downward corrections occurred in housing markets during 2006, and further adjustments have extended into the early part of 2007."

The NAHB (National Association of Home Builders) Chief Economist David Seiders believes that the boom and correction cycle was largely based on national rather than local factors, causing most regions to experience some degree of "overheating and correction." He said, "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."

For this year, the NAHB predicts new single-family hoem production at 1.2 million units, 30.2% down from the all-time high in 2005, which was 1.72 million units. They are more optimistic about 2008, when they forecast single-family home production to be 1.31 million units (only 23.8% down from 2005).

By 2008, the NAHB believes the inventory overhang will mostly be absorbed. They feel areas that were not overbuilt during the 2004-05 boom will return to normal levels of production.

The study revealed the future is something to look forward to for new home sales.