Foreclosure-relief effort failing many

by Alan Zibel Associated Press Jul. 21, 2010 12:00 AM

WASHINGTON - The Obama administration's effort to help those at risk of losing their homes is failing to aid many and could spur a rise in foreclosures that would further depress the housing industry.

More foreclosures would force down home prices and that would deter already-ailing homebuilders from starting new projects.

As a result, the economic rebound could suffer. Each new home built creates, on average, 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.

Home construction plunged in June to the lowest level since October, the Commerce Department said Tuesday. Driving the decline was a more than 20 percent drop in condominium and apartment construction, a small but volatile portion of the housing market. Construction of single-family homes, the largest part of the market, was essentially flat.

Applications for building permits, a sign of future activity, were up slightly.

The home-construction report was released one day after the National Association of Home Builders said its monthly reading of builders' sentiment about the housing market sank to the lowest level since March 2009.

"We're going to see very minimal new construction until the stream of foreclosures has ended," said Jack McCabe, a real-estate consultant in Deerfield Beach, Fla.

More than 40 percent of the 1.3 million homeowners enrolled in the Obama administration's mortgage-relief effort have fallen out of the program, the Treasury Department said Tuesday.

Mark Zandi, chief economist at Moody's Analytics, predicts that about 2 million homes are likely to be sold over the next 12 to 18 months as foreclosures or short sales.

Builders are adjusting by adopting a new sales pitch. Many are emphasizing the simplicity of buying a new home, compared with the bureaucracy involved with purchasing a short sale or the expense of repairing a foreclosed property.

Yet even as they discourage buyers from looking at distressed properties, some builders see financial opportunity in that market. Luxury homebuilder Toll Brothers Inc. said this week it would form a new subsidiary that will invest in distressed real estate, buying up distressed loans or unfinished developments and possibly selling them to other builders.

The rate of home building is up about 15 percent from the bottom in April 2009, though it's down 76 percent from the last decade's peak in January 2006.

New home sales in May dropped 33 percent to the slowest pace in the 47 years records have been kept.

The drop-off came immediately after the tax incentives to sign a contract on a home ended on April 30.



Foreclosure-relief effort failing many