Homebuilders Have Little Incentive to Build Under Current Conditions
LAS VEGAS, Jan. 19 /PRNewswire-USNewswire/ --Despite recent data suggesting increased sales activity, foreclosure improvement and inventory reduction, the environment for a sustained improvement in single-family starts activity may not be as positive as it seems.
According to a recent report by the Portland Cement Association (PCA), homebuilders are unlikely to accelerate construction activity until two critical conditions are met - low inventory levels of unsold new homes and stable or rising home prices.
"Currently, with housing prices fluctuating and new foreclosures coming on the market every month, homebuilders have no guarantee of a adequate return on investment," Ed Sullivan, PCA chief economist said. "And there is little to suggest that this will change in the near future."
Tepid increases in residential construction activity are expected to materialize during the latter half of 2010 with more substantive gains expected in 2011 and beyond. PCA's fall forecast projects a 14.4 percent increase in housing starts during 2010 compared to extremely depressed 2009 levels. This reflects a 20 percent increase in single-family starts and a 5.7 percent decline in multifamily starts. These projections lie well below the consensus of construction economists' expectations.
Sullivan said federal tax credit programs artificially inflated the recent improvement in home sales and there is the potential for a significant sales payback during the second half of 2010. Additionally, slow job growth is expected to hinder housing sales during the second half of 2010 as is continually tight lending standards.
"It is also likely that foreclosure activity may accelerate during 2010. This, combined with increased bank possession rates, suggests potential significant addition to existing inventories. The combined increase in properties for sale and bank-possessed discounted properties could forestall home price gains," Sullivan said.
Unlike the construction economist consensus, PCA believes that the potential for slower than expected sales, higher than expected inventories, and a weaker than expected pricing environment suggest a delay in homebuilders reaching the trigger point signal to accelerate single family home building.
Based in Skokie, Ill., the Portland Cement Association represents cement companies in the United States and Canada. It conducts market development, engineering, research, education, and public affairs programs. More information on PCA programs is available at www.cement.org.
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SOURCE Portland Cement Association