Home builders can expect market to return to 2001 to 2005 levels

When we tell our clients that we expect prices to revert to 2002 or 2004 levels in many markets, they nod in agreement. When we tell them that we expect prices in their market to fall 30 percent, 40 percent or 50 percent, they think we are crazy. It is the same thing. We are forecasting a reversion to price levels of 2001 to 2005, varying by market as shown in the tables shown below that lists 20 of the largest housing markets in the country. Prices should not fall as dramatically in Texas, where the economy remains strong but new home oversupply and excessive subprime lending have wreaked havoc. Where almost everything went wrong — and where the economies are currently shedding jobs — such as in California, Arizona, Florida and Nevada, the price corrections will be much more severe. Location. Location. Location. Even more importantly to housing's giants, however, is that the degree of decline and the timing of the recovery will be more dependent on the location within the metro area, rather than the metro area itself. The most desirable neighborhoods in the best school districts and near employment centers seem to be faring much better than other areas. Due to demographics, we favor locations in excellent high school districts. We made these projections before the Freddie and Fannie takeovers were announced, creating a significant decline in mortgage rates. If the federal government, which now controls the nation's mortgage industry, continues to allow the agencies to buy mortgages at high LTVs and relatively low FICOs, the market will rebound quicker than we anticipate. While the press will focus on the mortgage rate, you should focus on the LTVs and the credit requirements.Conclusion Pull out your records from 2002 to 2004 to remind yourself of how homes were priced in those years. They weren't that long ago. Assume that buyer incomes have grown about 3% per year since then to help you determine where prices should be today. Be patient with new acquisitions and do your homework. Great land buys are coming your way. It just takes time for the sellers to come to grips with 2002 – 2004 pricing.City12-month SF Permits12-month SF Growth12-month Total PermitsTotal Permits / Peak Permits1-year Payroll Employment Growth1-year Growth RateUnemploy-ment RateMedian Detached Resale Home PriceHouston34,631-30%52,66570%54,1002.1%4.7%$161,300Atlanta20,169-53%29,68040%18,1000.7%5.9%$153,911Phoenix17,178-50%28,05638%-25,900-1.4%4.3%$205,000Dallas15,191-35%29,11339%40,9002.0%4.8%$168,700Charlotte11,077-41%16,50466%17,8002.1%6.3%$170,000Raleigh-Cary9,980-23%13,75778%13,8002.7%5.0%$206,000Austin9,861-32%19,05472%13,9001.8%4.2%$196,900Chicago9,108-48%20,51847%-8000.0%7.3%$235,000Washington, D.C.8,795-36%14,31938%23,7001.0%4.0%$344,898Fort Worth8,667-30%12,94934%16,9001.9%4.7%$119,800Riverside / San Bernardino8,629-62%13,09323%-25,800-2.0%8.0%$250,000Las Vegas8,017-49%20,57652%-6,200-0.7%6.5%$225,000Orlando7,753-54%14,98842%00.0%5.3%$210,000Nashville7,728-40%9,82154%6,3000.8%5.8%$169,950San Antonio7,324-36%12,05954%16,7002.0%4.6%$158,600Seattle6,541-36%18,00865%21,5001.5%4.0%$418,000St. Louis6,204-31%7,58441%-7,400-0.5%6.5%$185,710Portland6,019-34%9,88850%4,8000.5%5.3%$280,000Tampa5,860-46%9,66426%-23,100-1.8%5.9%$165,000Jacksonville5,825-30%8,52334%-3,800-0.6%5.6%$185,000Data on all markets available at www.realestateconsulting.com. Sources: John Burns Real Estate Consulting, U.S. Bureau of Labor Statistics, U.S. Census Bureau through the month ending June 2008

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CityExpected TroughPeak Trough DeclineReversion Date EquivalantHouston2010-14%2005Atlanta2011-19%2001Phoenix2011-44%2002Dallas2010-15%2002Charlotte2010-18%2001Raleigh-Cary2011-21%2002Austin2010-13%2006Chicago2011-22%2003Washington, D.C.2011-38%2003Fort Worth2010-16%2004Riverside - San Bernardino2011-55%2002Las Vegas2011-46%2003Orlando2011-33%2004Nashville2011-20%2005San Antonio2011-19%2005Seattle2011-25%2005St. Louis2012-24%2005Portland2011-21%2005Tampa2010-32%2004Jacksonville2010-29%2004Sources: John Burns Real EstateConsulting, DataQuick, Economy.com, Texas A&MJohn Burns helps many of the largest companies in the industry with strategy and monitoring market conditions. He can be reached at [email protected].