Local economy not immune from national housing sector woes

A recent report from Moody’s Economy.com predicts U.S. home prices will bottom by the end of 2009, with average U.S. home prices down 36% from their 2006 peak.

Houston-based Metrostudy predicts housing starts in 2009 will drop an additional 47% from 2008 levels.

Both reports paint a bleak picture for the national housing market — a market that impacts the Fort Smith region in more ways than one.

REGIONAL IMPACT
“Any business with a sizeable proportion of revenue coupled to a depressed industry, the way companies like land developers, appliance manufacturers, suppliers of construction materials, furniture stores, fixture suppliers, etc. are tied to new home construction, will continue to feel the impact of the ever-widening crunch,” Steve Williams, dean and professor of management, College of Business at the University of Arkansas at Fort Smith, noted in an e-mail interview with The City Wire.

Williams said the Fort Smith regional housing market can’t escape the effects of a national housing market that could see up to 4 million foreclosures in 2009.

Some of that effect has already cycled, with Van Buren issuing 58 new home permits in 2008, down almost 60% from the 136 new home permits issued in 2007. In Fort Smith, the number of new home permits fell slightly, with 199 in 2008 and 210 in 2007.

Also expected to feel the pinch are area manufacturers — Whirlpool, Rheem, Trane, Riverside Furniture, etc. — tied to the national housing industry.

Whirlpool recently announced that it expects 2009 U.S. unit shipments to decline approximately 10 percent from 2008. The downturn in product sales is noted by the company as a key reason it has reduced employment at its Fort Smith plant from about 4,500 in early 2006 to between 1,500-1,000 today.

Trane announced Dec. 3 it would cut 100 jobs in Fort Smith because of slow demand for its residential air conditioning systems.

Riverside Furniture announced Nov. 13 it would lay off 250 employees “in response to the sharp decline” in furniture sales.

“I think industry-related manufacturers in the Fort Smith area are going to see their situations worsen over the short term, and even when the home building market turns the corner and begins to expand in a couple of years, it will take some time for the current housing supply to work itself through the system to a high enough degree to improve the position of supporting industries,” Williams explained.

Williams predicted it could take up to two years for “the effects of the Obama stimulus package” to produce relief for area companies tied to the housing industry.

MOODY’S PREDICTION
In its report, Moody’s said home inventories are flattening, prices are coming down to earth, and sales are approaching stability. Home prices nationwide have already fallen by about 25% since their 2006 peak.

“Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight for the nation,” Mark Zandi, chief economist of Moody’s Economy.com, said in a statement. “Presuming we see strong action by policymakers to help support the economy and the housing market, prices will begin to recover by the end of this year.”

The study predicts that by the time the market correction is complete, it will have been widespread and severe, with 62% of the nation’s 381 metro areas seeing double-digit, peak-to-trough declines in house prices. The hardest-hit regions, such as Southeast Florida, California’s Central Valley, and the Riverside, Calif., metro area, are expected to decline by upward of 50%. In only about 42 markets, mostly smaller cities in the South, house prices will fall by less than 1%.

The average price of homes sold in Arkansas in 2008 fell just 1.98% compared to 2007.

Moody’s forecast is not pretty: “Even if the recession ends late this year, as expected, the subsequent recovery looks to be lackluster. Real GDP is not expected to return to its prerecession peak until late 2010, and the nation will not approach a full-employment jobless rate of 5% before President Obama’s term nears its conclusion in 2012.”

METROSTUDY REPORT
Metrostudy has said a decline in new home starts is needed to reduce the excess inventories found in almost every U.S. metro area. (Established 34 years ago, Metrostudy conducts a quarterly 100-percent count of actual housing starts and inventory in 81 Metropolitan Statistical Areas across 19 states.)

“Absorption of the standing vacant inventory is key to finding a price bottom. Our forecast for 2009 is that starts will fall 47 percent to nearly half the level of 2008, which amounts to 483,000 total starts for the calendar year, in order to reduce inventory to an acceptable level,” noted Metrostudy economist Brad Hunter.

The Fort Smith/Van Buren market had 1,116 homes on the market as of Aug. 4, 2008. That number declined only slightly to 1,091 as of Feb. 9. Statewide, the inventory of available homes fell from 14,070 in early August to 12,083 as of Feb. 9 — a 14% drop in the 6-month period.

Metrostudy’s research suggests that starts could hit 500,000 in 2009, but forecasts of 600,000 to 700,000 are unlikely to be met. Hunter said the government’s “headline” housing starts numbers have long been overstated, based on Metrostudy’s actual counts of housing starts. The government numbers are based on a sampling of housing permits, not all of which translate into starts, particularly in today’s environment, Hunter said.