NAHB: tighter lending standards won't prevent housing recovery.

Tighter lending standards and reduced availability of credit will complicate--but not derail--a national recovery in the housing market, according to the National Association of Home Builders' (NAHB) state and metro economic forecast.

"The consequences of aggressive marketing of exotic mortgages--especially subprime ARMs--during the housing boom came back to roll credit markets over the summer," said NAHB chief economist David Seiders. "With many of these mortgages scheduled to reset to higher rates in the remainder of 2007 and through 2008, additional weakness in housing markets is likely."

The impact on housing markets will come in two forms, Seiders said. First, tightened lending standards have already reduced the availability of loans overall and raised the price to riskier borrowers. A second effect, with the potential for a vicious cycle of defaults and price declines, will depend on the level of exposure to these loans, the current house price environment, and the strength of the local economy.

"Housing markets in parts of California and coastal Florida, as well as Phoenix and Las Vegas, are among the most vulnerable due to a boom in demand from 2003 through 2005 and speculative activity," Seiders said. "Markets in parts of the industrial Midwest are vulnerable due to weak economic conditions."

Many markets have less subprime exposure, experienced modest house price appreciation during the boom, and have strong local economies. These markets are positioned to out-perform the national trends with earlier and stronger recoveries than the more troubled markets, according to NAHB. Clustered in the Southeast, Texas, Pacific Northwest and Mountain states, these markets are currently recording single-family permits at or above pre-boom levels.