WASHINGTON - With help from Congress and an accommodating policy from the Federal Reserve, the housing industry is expected to begin its recovery in the second half of 2008, the National Association of Home Builders (NAHB) stated in a year-end housing forecast teleconference.

“I think the best bet is that 2008 is the year we will be looking at the bottom for various components of the housing market,” said David Seiders, NAHB chief economist.

“We are in a down time, and many markets that overheated during 2003-2005 such as Las Vegas, Phoenix, and Miami are undergoing a natural correction,” added Jerry Howard, executive vice president and CEO of NAHB. “But all housing is local, and the reason we think that the market will stabilize and come back is because many smaller markets that did not experience overheating are still performing at a relatively healthy level. If you balance those markets against those that are undergoing major corrections, we see a solid recovery down the road.”

Seiders, who is forecasting slow economic growth next year, said this forecast is based on several assumptions - the economy avoids recession, Congress passes key reforms to address the subprime lending crisis, and the Federal Reserve remains ready to step in if needed to keep the economy moving forward.

Noting that NAHB’s Housing Market Index, which predicts demand for new single-family home sales, has stabilized at low levels during the past three months, Seiders said that this is an indication that “we are now approaching the bottom of home sales activity, and we anticipate a recovery in sales beginning in the second quarter of 2008.”

Getting sales stabilized is the key to turning around housing production, noted NAHB. Housing starts peaked in the first quarter of 2006, and Seiders expects starts to bottom out in the second quarter of 2008, registering a 55 percent decline from peak-to-trough activity.

“As sales begin to improve, this will whittle down excess inventory, allowing the production of new homes to begin moving forward in the latter half of 2008,” he said.

To help the housing industry to begin its recovery next year, Howard said that Congress must act quickly to pass an FHA modernization bill and legislation to reform Fannie Mae and Freddie Mac so that they can play a larger role in restoring stability in the mortgage markets.

“I am happy to report that policymakers have been doing the right thing,” said Howard. “The Fed has stepped in three times to lower interest rates, which underscores how seriously they are taking the issue. The administration has stepped in with its Hope Now and FHASecure programs - both designed to limit the number of homes that actually go into foreclosure and back on to the market.” Also, he said, “Congress passed mortgage debt forgiveness legislation that the President signed into law.”

While these are all positive developments, Howard said that Congress still has plenty of unfinished business that must be attended to.

He called on lawmakers to move promptly to reconcile competing bills in the House and Senate that would that would allow the FHA to provide a viable alternative to the subprime market by increasing its loan limit for high-cost markets and providing flexible downpayment requirements. He also urged the Senate to act on companion legislation to House-passed bill H.R. 1427, a measure that would reform government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

“GSE reform would help to provide much-needed liquidity in the jumbo loan marketplace by raising the conforming loan limit in high-cost areas, allowing Fannie and Freddie to purchase more mortgages in these markets,” said Howard.

Another reason that Howard cited for optimism looking ahead is a new report from Harvard University’s Joint Center for Housing Studies, which found that even with the large inventory of unsold homes on the market today, the long-term demand for conventional housing units will run at a strong clip of 1.82 million per year between 2008 and 2014.

The Harvard report concluded: “Do not mistake short-term reactions to the housing slowdown as a harbinger of things to come for the long term. On the strength of demographically-driven demand for housing, the market will bounce back from its currently suppressed levels.”

Still, the fragile housing market and economy show that policymakers must still remain vigilant in 2008, NAHB said.

“NAHB applauds Treasury Secretary Paulson, HUD Secretary Jackson, federal policymakers, and the Congress for their actions so far,” said Howard. “Recent weeks have shown that when our elected officials understand the severity of a problem, they can get past partisanship and do the right thing. We hope that trend will continue into next year.”

Publication date:12/24/2007