February 3, 2010

Home Builders Expect Construction Recovery

LAS VEGAS—Housing construction is expected to rebound this year from the severely depressed 2009 level, but the market remains fragile as foreclosures continue to rise.

Builders are likely to start construction on 610,000 single-family homes this year, up 38% from last year, according to David Crowe, chief economist for the National Association of Home Builders, which is meeting this week for its annual convention. That forecast assumes that the total number of U.S. jobs will start growing again in the second quarter. Housing starts would remain far below the 2005 peak of 1.7 million.

Mr. Crowe cautioned that the housing market remains tenuous, partly because foreclosures are still increasing, job growth this year is likely to be tepid, and builders are having trouble getting credit.

The convention drew more than 50,000 builders, suppliers and other participants, down from more than 60,000 last year and 140,000 in 2007, a spokeswoman for the home builders said. Many suppliers were touting energy-efficient products rather than glitzy décor. "The builders here are the survivors," Mr. Crowe said.

Less than three miles from the convention, around 60 people perched on folding chairs in a parking lot to bid on foreclosed homes, a daily feature of the Las Vegas market. About 60% of Las Vegas home sales in December were foreclosed properties, according to the Greater Las Vegas Association of Realtors.

Many builders are focusing on low-cost homes to compete with foreclosures. In Las Vegas, the typical new house from KB Home is priced in a range of about $150,000 to $170,000. Four years ago, typical new homes in Las Vegas were in a range of $400,000 to $550,000.

Frank Nothaft, chief economist at the government-backed mortgage investor Freddie Mac, said the percentage of people who are behind on their mortgage payments probably won't peak until the second half. As of Sept. 30, about 14% of American home-mortgage borrowers were at least 30 days behind on payments or in foreclosure, according to the Mortgage Bankers Association.

John Burns Real Estate Consulting, an Irvine, Calif., firm that advises home builders, said sales of new homes and visits from potential buyers have picked up in recent weeks after a lull in last year's final quarter.

Many builders are starting the year with low inventories of completed homes, the firm said. That should spur building in the months ahead as builders seek to have houses ready for people who want to make purchases before the April 30 deadline to qualify for a tax credit for home purchases.

Source: The Wall Street Journal, January 20, 2010

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