Homebuilders doubt recovery

by Alan Zibel Associated Press Jun. 16, 2010 12:00 AM

WASHINGTON - Homebuilders are feeling less confident in the recovery now that government incentives for buyers have expired.

Their pessimism could drag on the economy, which may not benefit so much from the job creation that construction generates throughout various sectors.

The National Association of Home Builders said Tuesday that its housing-market index fell to 17 in June, sinking five points after two straight months of increases. It was the lowest level since March.

Builders had been more optimistic earlier in the year, when buyers could take advantage of tax credits of up to $8,000. Those incentives expired on April 30, although buyers with signed contracts have until June 30 to complete their purchases.

Experts predict home sales will slow in the second half of 2010. In addition, high unemployment and tight mortgage lending continue to keep many buyers on the sidelines.

The drop in activity is "a wake-up call to the fact that the market will struggle to stand on its own two feet without the tax credit," wrote Paul Dales, an economist with Capital Economics. "The double-dip in both activity and prices that we have been expecting for some time appears to have begun."

New-homes sales made up about 7 percent of the housing market last year. That's down from about 15 percent before the bust.

It's also bad news for the economy. Each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders. The impact is felt across multiple industries, from makers of faucets and dishwashers to lumber yards.

But it has weakened in recent years. Spending on residential construction and remodeling made up only about 2.4 percent of the nation's economic activity in the first quarter of the year. That's down from a peak of more than 6 percent during the housing market's boom years.

In a typical economic recovery, the construction sector provides much of the fuel. But developers are trying to sell a tremendous glut of homes built during the boom years and they are competing against foreclosed homes selling at deep discounts.

Another problem for the building industry is that lenders are reluctant to make construction loans to developers.


Homebuilders doubt recovery