Is 2009 the “bottom out” year?

Portions of this post were released at the Builder’s Home Show in Las Vegas this year. A panel of housing experts on Tuesday projected that builders' woes will deepen this year, pushing the prospect of a recovery into 2010 at the earliest.

"We do expect '09 to be the down year, to be the bottom," David Crowe, chief economist for the National Association of Home Builders, said during a news conference at the International Builders' Show, which runs through Friday.

The outlook reflects grim forecasts that call for home prices, new construction and home sales to decline this year, while mortgage defaults, foreclosures and unemployment continue to rise. That dynamic has kept the housing market mired in a slump and homebuilders large and small in the red. The U.S. economic downturn, meanwhile, has crippled any hopes for a near-term housing recovery.

Crowe said he expects the number of new homes constructed to fall by 29 percent this year from last year, but then jump by 34 percent in 2010. He sees new home sales falling 14 percent this year. Locally, we expect most of our stalled development projects to stay dormant for the year. There are only 1-2 builders doing any new home or condo building in our area right now.

"But we are expecting that trough to occur sometime in the middle of this year, and for us to come out the other end of '09 on an upswing," Crowe said. He noted that the upswing won't be as strong as in previous recoveries because there are too many unsold homes on the market.

"We won't be able to get through those in one year, and we'll still probably have house price declines," Crowe said.

Frank Nothaft, Freddie Mac's chief economist, said he expects the U.S. recession to be "relatively long, relatively deep." He projects the U.S. unemployment rate will rise to 8.7 percent by the fourth quarter of this year. The U.S. rate hit 7.2 percent last month, but here in Michigan we broke through the 10% level to 10.3% in December according to local reports.

"The single most important trigger event leading to (mortgage) delinquency is unemployment," he said. We could add that a lot of homeowners locally have gotten into trouble not because they lost their jobs, but because most overtime has been drastically cut back and it was that overtime that the homeowners counted on to pay the mortgage.

Not surprisingly, Nothaft's outlook also calls for default rates on mortgages to keep rising this year, particularly on home loans made to prime borrowers. He also expects home prices to continue to decline into 2010, but says the housing market should begin to show signs of improvement beginning in the second half of this year as government efforts to stimulate the economy kick in.

David Berson, chief economist for mortgage insurer The PMI Group Inc., said the company's latest risk index shows that 97 percent of the nation's metropolitan areas had a greater probability of home prices falling over the next two years.

"The risk went up ... almost everywhere," Berson said.

In more than half of the major metro areas, the risk of home price declines was greater than 50 percent, he added. In our area there are projections of further value reductions ranging from 9% to 15%.

The panel cautiously noted that low mortgage rates, falling home prices and population trends bode well for a turnaround — eventually. I wonder how long that is- eventually?Now if you’ll excuse me, I’ve got to go outside and look for a rainbow somewhere. I need to find a reason to put on a happy face.