Ivy Zelman’s view of the U.S. housing market is gloomy, but it’s probably the most realistic.
A veteran Wall Street analyst, Zelman, chief executive of the research firm Zelman & Associates, says it’s unlikely the U.S. housing market will recover before 2009, adding there’s a “50 to 60 percent chance of a recession,” as the housing slump curbs consumer spending.
Zelman paints a much darker picture than Federal Reserve Chairman Ben Bernanke, who said last week that housing will be a “significant drag” on the economy into next year.
When you consider the huge home inventories and tight-as-a- drum mortgage restrictions, it’s easy to conclude that the housing slump could extend well past 2008. Unless financing loosens up and buyers return, her prophecy will become a reality.
“I’ve never seen the market as bad as this,” Zelman said. “And it could get worse. The home-price decline could range from 16 percent to 22 percent.”
Monitoring inventory, builder incentives and demand, Zelman is also watching adjustable-rate mortgage resets. Homeowners with these loans will automatically face higher monthly payments that they may not be able to afford, another trigger for foreclosures or sales. Some $500 billion of these loans will re- adjust through 2008, Zelman says.
“These are the worst inventories we’ve seen as a nation,” she says. Zelman originally presented her report Oct. 10 to the Home Improvement Research Institute, a Tampa, Florida-based trade group.
Zelman’s words carry some weight because she was one of the few major Wall Street analysts to warn of a housing decline months before it began late last year.
She was alarmed that home prices far outpaced personal- income increases during the boom, which is how the economic disconnect began. A bubble created artificially high demand that had to deflate sometime. Now economists and analysts are trying to assess the collateral damage of the bust and subprime mortgage meltdown.
Meanwhile, builders are stuck with thousands of new homes they can’t sell and potential buyers are canceling in droves or are unable to get a mortgage. Housing starts fell to a 14-year low in September.