PCA: Home construction tied to sales

What will jump-start the home-construction market? According to the Portland Cement Association, a recovery in housing starts must be preceded by increased sales, followed by a reduction in inventory. A new PCA economic research report indicates the conditions needed for this process to begin will not be in place until mid-2010.

“Housing construction activity cannot begin until sales recover,” said Edward J. Sullivan, PCA chief economist. “Increased foreclosures, coupled with deteriorating labor markets and tight credit conditions, will delay significant sales activity until mid-2010. Improvements in housing starts are not expected to be significant until 2011.”

Although the housing recovery bill, along with bank efforts to rewrite toxic mortgages will mitigate the magnitude of potential defaults and foreclosures during the next 18 months, PCA expects a weak labor market and declining home prices will increase the number of foreclosed properties being added to the housing market inventory.

“Without further government cash injections into the banking system, tight lending standards could characterize the economy and mortgage lending through mid-2011 dragging down home sales,” Sullivan said. “Under such a scenario, the housing recovery and overall economic recovery could be delayed significantly.” -- Mark S. Kuhar