2009 Was Home Builders' "Worst Year"

If you're looking for a sunny outlook on the economy, skip the International Builders' Show in Las Vegas.

The outlook for home builders is poor with only a slight chance of recovery in 2010. Ongoing joblessness and steady foreclosures are keeping U.S. builders from feeling confident about a quick recovery for the housing market, say economists at the industry pow wow.

"Builders realize that factors beyond our control – including consumer concerns about job security and competition from foreclosed homes on the market – are still impeding demand for new homes at this time," says Joe Robson, the chairman for the National Association of Home Builders.
The recently released NAHB/Wells Fargo builder confidence index decreased from 16 to 15 last month, its lowest point since June 2009. Readings so far below 50 signal that most respondents view conditions as poor, rather than good or fair.

All four U.S. regions recorded a drop in sentiment. The West, which fell from 19 to 16, had the biggest decline, while the Midwest, which fell from 12 to 11, has the poorest outlook. In the Northeast, confidence decreased from 23 to 22, and in the South it fell from 17 to 16. It is going to take the end of the recession along with the continuation of low mortgage interest rates and stabilizing housing prices to spur growth in the nation's housing market, the economists say.

Exactly when the recession will end is truly anyone's guess, so everyone is being cautious.

"Builders have acted prudently by cutting back production during a period of low demand and uncertainty in the overall market, and these trends are reflected in our recent builder surveys," says Robson, who is also a Tulsa, OK home builder. They are also reflected in the housing starts data, which track how many new housing units were actually started in a given time period.

Year-end figures from the Commerce Department show that overall housing starts declined 38.8 percent year-over year, to 554,000 units. Single-family starts were down 28.7 percent for the year to 444,000 units, while multifamily starts declined 61.1 percent to 110,000 units.

"These figures give us the first estimate of the worst year we've seen for housing production since the Census began recording these numbers," says David Crowe, the NAHB's chief economist.

Regionally, housing starts in December were down 19 percent in the Northeast, 18.5 percent in the Midwest and less than one percent in the West. The South posted a 3.3 percent gain. From here, it would seem there is only room for growth.

"With inventories so low, we're seeing an increase in permits as builders understand they need to ramp up production to take full advantage of the short window offered by the home buyer tax credit and the expectations of increased demand as the economic recovery begins to take hold later in the year," says Robson.

NAHB is forecasting 697,000 total housing starts in 2010, up 25.6 percent from last year. However, this year's recovery will occur entirely in the single-family sector, where starts are forecast to rise 37.7 to 610,000, says Crowe.

Suffering from a shortage of available financing, multifamily starts are expected to lose further ground in 2010, slumping to 87,000 units, down 22.3 percent from last year's 112,000 level. In 2008, 285,000 multifamily units were started, which is near the level that is needed to keep the supply in balance with demand.
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