30 May 2007

U.S. Home Construction Bust May Last Until 2011

The latest upswing in housing sales encouraged some to think we've reached the bottom of the housing downturn. Others indicated that the surge in sales was based on major developers offering deep discounts to reduce inventories. Meanwhile national inventories of homes for sale reached record highs.

U.S. Home Construction Bust May Last Until 2011 - Bloomberg.com
By Bob Ivry and Brian Louis

May 29 (Bloomberg) -- New home construction in the U.S. may take until 2011 to return to last year's level, said David Seiders, chief economist for the National Association of Home Builders in Washington.

Monthly construction starts would need to jump by 21 percent to reach Seiders's benchmark for full recovery, which is 1.85 million. There were 1.53 million in April, the Commerce Department said. At the height of the five-year housing boom in January 2006, construction began on 2.29 million homes.

``We've fallen way below trend because we soared way above trend during boom times,'' Seiders said in an interview. ``The upswing will be relatively slow, unlike earlier cycles.''

The inventory of unsold homes is the largest since the Chicago-based National Association of Realtors started counting them in 1999 and house prices have suffered the steepest drop since the Great Depression, according to the realtors' group. Defaults and foreclosures also may rise as about $650 billion of loans to subprime borrowers, those with poor or limited credit histories, reset at higher interest rates by 2009.

``We're still being hit pretty hard by the subprime-related mortgage market problem,'' Seiders said. ``One of the biggest unknowns right now is how serious the change on the mortgages side will be on home sales.''

Sales of new homes rose 16 percent in April, the highest increase since 1993, the Commerce Department said last week... The biggest gain in new-home sales in 14 years was made possible by homebuilders who cut prices more in April than in any month since 1970. The median new-home price fell 11 percent to $229,100 from $257,600 a year earlier, the reported showed.

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