I would have thought the decline would be even more severe. Clearly, the U.S. homebuilding industry will only regain its footing when -- among other things -- housing starts plummet to what, not long ago, would have been considered unthinkably absurd levels.

Sure, as the Commerce Department told us Thursday, the number of starts in 2007 was down 24.8% from the prior year to a level of 1.353 million units. And sure, the December number represented a 14.2% slide from a month earlier. But in my rarely tentative opinion, 2008 numbers will have to decline yet again from 2007 levels for inventories to dry up sufficiently for such hammer holders as Centex (NYSE: CTX), Pulte (NYSE: PHM), Ryland (NYSE: RYL), and Lennar (NYSE: LEN) to be able to stem their own financial bleeding.

And beyond that, it seems that at least four other changes must occur for the black ink to be broken out by the builders:

  • The likes of Countrywide (NYSE: CFC)/Bank of America (NYSE: BAC) and IndyMac (NYSE: IMB) will need to get their acts together to form a responsible and more efficient mortgage lending system within our nation. It'd be difficult to convince me that such a step is imminent.
  • Proud owners of existing homes must become more realistic about the asking prices they pin on their haciendas when, for whatever reasons, they seek to sell. For the most part, builders have slashed prices, while many homeowners apparently can't quite bring themselves to do so.
  • Consumer confidence will need to improve dramatically before housing sales -- and therefore starts -- can return to higher levels. With energy prices still historically high and with a general spending pullback in progress, that may be asking a lot.
  • The rate of foreclosures will have to begin to descend, something else that ain't on the horizon.  

The builders obviously understand all this. That's likely why their confidence level, as reported Wednesday by the National Association of Home Builders, remained at a crying-in-their-beer level of 19 this month, on a scale that has 50 as the break-even metric.

It's also why I implied above that the wash-out effect of an even larger fall in starts could have been somewhat cathartic. And finally, it contributes to my sense that Fools would be well advised to continue giving the homebuilders a wide berth for a while longer.

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Fool contributor David Lee Smith doesn't own a share in any of the companies mentioned. He does welcome your questions, comments, or other communications. Bank of America is an Income Investor recommendation. The Fool has nailed it with its disclosure policy.