After a year of decline, 2007 is expected to be a year of transition, with growth emerging in many areas, according the NAHB Regional Housing Starts Forecast.

While most housing markets throughout the country experienced a year of decline in 2006 following the boom levels of the previous two years, 2007 is expected to be a year of transition, with growth emerging in many areas, according the National Association of Home Builders’ (NAHB) Regional Housing Starts Forecast, which reports on regional and state-by-state housing forecasts and analyzes the health of local housing markets.

“Because the boom and correction cycle has largely been driven by national rather than local factors, most regions have experienced some degree of overheating and correction,” explainedDavid Seiders, chief economist for NAHB. “We expect 2007 to be a time of transition in most regions, with housing starts bottoming out in the early part of the year before transitioning to gradual recovery paths.”

According to the report, housing markets with the biggest booms in 2004 and 2005 are generally expected to be the slowest to return to normal levels of activity and those that showed more restraint will be the first to show growth, with notable exceptions concentrated in the industrial Midwest.

The report examines data for seven major census regions/divisions:

  • South Atlantic Division - This area of the country had widely varied housing experiences, with areas like Georgia as well as the Asheville, Charlotte, Durham, Greensboro, Raleigh and Winston-Salem metro areas in North Carolina all experiencing only modest declines in 2006, leaving the areas near or above pre-boom levels of production.

    In contrast, many markets in Florida experienced some of the highest levels of overheating, with markets like Orlando seeing housing starts spike to 150 percent of normal activity.

  • West South Central Division - Dominated by Texas, which accounts for nearly 75 percent of its housing starts, the West South Central area had the strongest growth during the boom and has maintained the highest level of production through the correction.

    The division also includes the New Orleans metro area, which has seen housing starts emerge from its 2005 collapse to rival pre-Katrina levels.

  • East South Central Division - The East South Central area, comprised of Alabama, Kentucky, Mississippi and Tennessee, was the only area other than the West South Central region to have housing production levels at the end of 2006 above pre-boom levels.

  • Mountain Division - The Phoenix metro area rose to 149 percent of pre-boom demand in 2005 before dropping to 79 percent by the end of 2006, making it one of the most volatile markets in the nation. Las Vegas performed similarly with prices rising rapidly, primarily due to investor demand.

    NAHB forecasts that, due to the steep corrections, these areas will grow moderately this year and next as they cope with the prices, production and investor excesses that swamped them.

  • Pacific Division - The boom in California, which accounts for 70 percent of the starts in the division, had something to do with investors but more to do with demand for affordable housing in the state.

    The report notes that major markets such as Los Angeles, San Diego and San Francisco are expected to experience strong gains in 2007, based on deceleration in prices and the absence of over-production during the boom and the depth of their slowdowns in 2006.

  • Northeast Region -  In comparison to the South and West, the Northeast has experienced a fairly restrained housing cycle. Major metro areas such as Boston and New York had production levels that looked more like recovery from a slowdown earlier in the decade rather than an over-stimulated boom.

    Due to the fundamental health of the underlying economies, a quick recovery and a return to more normal levels of production is expected in these markets.

  • Midwest Region - The Midwest region suffered the most in this housing cycle with the lowest peak during the boom and the deepest trough during the correction, due largely to weakened economies in the region’s industrial cities like Detroit and Kansas City.