How low can starts go? (Not much lower.)

Amid record-low residential construction statistics and massive federal stimulus plans, now is not the time for false hopes or phony prophecies.

Nor is it a time to dwell on the negative. There are too many places for that already.

Perhaps what might be useful here is to point to an optimistic (relatively) housing construction forecast and explain the reasons for that optimism.

But is there such a forecast? You bet there is. I introduce you to RISI’s Paul Jannke, a past member of the Swedish Academy of Sciences and current senior vp for RISI, a major information provider for the forest products industry.

January’s housing starts, expressed as a seasonally adjusted annual rate, were 466,000. Several major pro dealers and industry executives have told us it’s optimistic to think that the rate will rise to 700,000 in 2009. And some forecasters see it hovering around its current pace through the year.

Now, hold on to your hammers. Jannke’s forecast—expressed compellingly in a slide titled “Housing Starts Have Hit Record Lows and Will Remain Weak through 2009”—calls for the housing starts rate to bottom out in the next couple of months, then march upward steadily to about 1 million by the end of the year.

Ladies and gentlemen, I want to believe him, and Jannke’s presentation during last month’s Northeastern Retail Lumber Association LBM Expo gives cause for hope.

First, he shows that starts simply don’t have that much farther to drop. That position is supported by a lesser-known subset of housing starts called “built by owner” that has shown remarkable resilience in these tough times—around 250,000. And even if all other construction hits absolute 0, the built by owner number will still be in the 200,000 range, conservatively.

“So where is the bottom?” he asked. “We like our forecast to bottom around 500,000 or maybe 400,000, and it is unlikely to go much below. Beyond that, we see starts coming back.”

Second, he points to the natural salve of population growth. The growing population of America has to live somewhere, is the crux of this argument. The data suggest that the average new residential construction requirements for a country like ours are about 1.8 million starts per year. Building has outpaced the basic requirements for the past dozen years or so—especially in 2004, 2005 and 2006.

But last year alone the country under-built by about 800,000, relative to this base underlying demand. “We’ve made up for the overbuilding,” Jannke said. “There is some certain level of production needed to house the growing population.”

Third, he points to declining home prices. Already, in many areas home prices have dropped 30 percent; and RISI’s forecast can see prices continue to drop to the 40 percent level or beyond. And as negative as that sounds, and it is to many people, that’s a good thing for the market.

“I see a lot of people talk about how bad it is that home prices are falling,” Jannke said. “It’s actually good for our industry. Home prices need to fall in order to have these markets balance and get people back into the housing market and buying homes again.”

A million homes in three easy steps? It’s not that easy. Jannke, himself, is concerned over foreclosures, employment and other macroeconomic factors.

“We’re certainly more optimistic than other people,” he said.

Say what you want about his forecast, there’s nothing wrong with a little optimism.