| New Home Sales Will Rebound Starting in 2009, But Forget Previous Peaks |
| Written by Jonathan Smoke | |
| 05.09.2008 | |
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Discuss this article on the forums. (0 posts) Earlier in the week I reported on the latest published expectations of well regarded economists and their specific views of when new home sales will reach bottom and begin to rebound on a national level. Bill Russell and I have been working on our own national forecast all week. I didn’t think some traditional forecast models we’ve used, as well as seen from others, reflected the fundamental shifts occurring on credit and home ownership, so we’ve worked on incorporating a variety of new variables into a model. Our latest attempt produced a forecast that back-tests well. It also forecasts future levels of sales that seem intuitively correct. The chart below shows the last 5 years of actual national new home sales against our new model’s forecast as well as the forecast through 2012. The model uses household formation, permit activity and home ownership rates to forecast new home sales. This last element is critical because the current credit crisis and the overall tightening of credit have a great impact on home ownership. Changes in home ownership have a big impact on new home sales. This new forecast shows new home sales (depicted in the thousands by month) bottoming out in the fourth quarter of 2008. New home sales then rebound, gradually improving each month until reaching a plateau in 2012. Note that this new plateau is significantly less than the peak reached in 2005. Indeed, our new model forecasts new home sales topping out at under one million homes per year. The peaks and excesses of the first half of this decade would be best forgotten. 
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