The Housing Chronicles Blog: A muddled outlook for homebuilders in 2010

Tuesday, February 16, 2010

A muddled outlook for homebuilders in 2010

In contrast to the overall market, stocks of some homebuilding companies have continued to rally this year on the assumption that the strongest ones will take market share and emerge victorious when the market eventually rebounds. But since it's largely been government largesse propping up the housing market in the form of tax credits and low interest rates, once those training wheels are removed there is a real concern of a double dip. And of course there's also the matter of another wave of foreclosures, which are generally priced far below new homes. From a story in BusinessWeek:

While new home orders have increased in recent months and the pace of housing starts is expected to accelerate, the reality is that the housing market continues to be heavily reliant on government stimulus initiatives affecting everything from mortgage rates, sales of homes to first-time home buyers, and the pace of bank foreclosures... Macquarie Equities Research analyst Kenneth Zener says he expects distressed home sales to be kept near the 2009 pace—1.8 million—over the next three years, because of efforts by the government and banks. But he believes government programs, such as the Federal Home Affordable Modification Program (HAMP), have only delayed and not solved issues around negative equity, which require some principal forgiveness... While the economic recovery holds out hope for homebuilders, the wild card will be the rate of foreclosures. And that's likely to become more volatile as the government withdraws its massive liquidity on signs that the economy is finding its footing again.

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