ASF Update: Really, Really Bearish on Housing

(Editor’s note: Monday and Tuesday of this week, HW will be providing periodic live updates on the sights, sounds, and sentiments at the ASF 2008 conference in Las Vegas.)

Having just taken in a morning session on the nation’s housing markets, it’s pretty clear that expectations are low on the Street and elsewhere for housing — perhaps most surprising, however, was just how bearish the sentiment really was.

David Berson, PMI’s chief economist, started his presentation by putting the odds of a short, shallow recession at greater than 50 percent — and that was with consumer spending and job growth remaining largely intact, or at the very least flat. And he then devoted much of the rest of his time looking at ways consumer spending would be more likely than not to retrench. You do the math.

Dennis McGill, director of research at Zelman & Associaties (yes, that would be Ivy Zelman’s firm, started after she bolted from Credit Suisse), was perhaps even more bearish than Berson. McGill emphasized that the housing slump is national in scope, and not regional, despite primary market participants’ assertions otherwise.

“It will be a long cycle before we get back to where we were,” he said, noting that he didn’t expect housing to stage a full recovery until 2012 or 2013, with real price declines being observed all the way through 2010. McGill also suggested that another 20 percent drop in national home prices beyond current levels may be needed to clear the market.

Much of the the Zelman presentation had data I’ve not seen discussed before, as well. Perhaps the most interesting was a discussion of how birth rates correlate with homeownership as a predictor of overall housing market demand. In particular, weak birth rates in 1991 - 1997 were predicted to correspond to poor housing starts during 2009-2015, confounding any recovery in the overall housing market.

“The economy has yet to feel the full repercussions of the housing downturn,” McGill concluded.

Freddie Mac’s Calvin Schure, director of economic analysis at the GSE, said that the U.S. economy is seeing a rare instance of “the tail wagging the dog,” and suggested that the current downturn in housing and the mortgage markets will likely take much longer to resolve than in other prominent durations of housing duress.

“This housing cycle is driven by different factors than other cycles we’ve had,” he said. The result, Shure said, will be “lingering credit quality issues” that will ultimately affect even the prime lending sector.