High Inventories Housing Starts

High home inventories will cause housing starts to decline 25% in 2008 from already depressed 2007 levels, according to a recent Skokie, Ill.-based Portland Cement Association (PCA) Economic Research report. PCA is predicting a 9.5- to 10-month supply of homes to be in “inventory” for sale by the end of 2008. The main contributor to the large inventory will be the large number of foreclosures caused by the sub-prime crisis, says Edward J. Sullivan, PCA chief economist. “Typically, builders accelerate start activity when the inventory supply reaches five months,” Sullivan says. PCA is estimating that a significant improvement in inventory won’t occur until the second half of 2009.

Increasing sales is the key to the residential sector’s recovery, according to PCA. Despite an 8% decline in the price of homes in 2008, tighter lending standards, weak economic conditions, and slower household formation will significantly slow sales in 2008. However, PCA predicts that current monetary and fiscal stimulus actions will start to have a positive effect in the second half of 2008 and first half of 2009, with job creation accelerating in mid- to late-2009.