Wednesday, May 30, 2007

David Seiders: Home construction may take until 2011 to recover

David Seiders, chief economist for the National Association of Home Builders (NAHB), said the current bust in home construction may last until 2011. Until then, construction will probably stay below last year’s levels.

Latest economic data on home prices and home construction has been more than gloomy, suggesting that the housing “slump” is far from over. Construction starts were 1.53 million in April according to the Commerce Department, compared to 2.29 million in January 2006. According to Seiders, “We’ve fallen way below trend”, because activity was especially strong during boom times. Unsold inventory is at the highest levels since 1999 when the National Association of Realtors started keeping track of it.

New-home sales increased in April, driven up by sharp declines in home prices. In addition to offering various incentives to home buyers, developers are now slashing prices by 10-20 percent and even more. The median price of a new home fell 11 percent year-over-year in April, to $229,100. Sales of previously owned homes fell to the lowest level in nearly four years, bad news for anyone hoping to sell their home at a reasonable price.

Bad time for home builders so far, but with inventory this high, it seems that things are going to get even worse. Staying in the business and avoiding losses is hard enough already, and making any profit in 2007 seems out of the question.

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