NAHM predicts calm after the storm of building boom.

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 area--according the National Association of Home Builders' (NAHB) Regional Housing Starts Forecast.

The forecast, available through NAHB's HousingEconomics.com, reports on regional and state-by-state housing forecasts and analyzes the health of local housing markets.

The earlier boom in housing can be attributed largely to excess demand generated by historically low interest rates coupled with aggressive mortgage lending practices, a combination that made homeownership more affordable but also attracted investors and speculators into many markets. These factors put inordinate upward pressure on sales, prices and production. Major downward corrections occurred in housing markets during 2006 and further adjustments have extended into the early part of 2007.

"Because the boom and correction cycle has largely been driven by national rather than local factors, most regions have experienced some degree of over-heating and correction," said NAHB chief economist David Seiders.

"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. In addition to the state-by-state analysis, the report examines data for seven major Census regions and divisions. Highlights include:

Mountain Division: The Phoenix metro area rose to 149% 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% 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.