As we emerge from recession, many different industries, including manufacturing and insurance, show heartening signs of life. But the homebuilding sector may take far longer to get back on its feet.
In the aftermath of many economic downturns, a rebound in homebuilding helps power recoveries in other businesses by generating jobs. But this recession owed largely to a housing market run rampant. Builders made too many homes for too many buyers who borrowed more money than they could afford. The resulting one-two punch of foreclosed homes and a glut of unsold houses devastated the market.
The recent slivers of good news in housing simply aren't enough. Building of single-family homes is picking up, rising 4% year over year in August. Overall, housing starts are up 25% from their April 2009 low, but they remain 74% below their 2006 high. We can't expect too much new construction until the excess inventory in the market is burned off. Widespread foreclosures are also boosting the supply of available homes and delaying a recovery.
Patience, grasshoppers
Several experts think it might take a few more years before new homebuilding really takes off again. Some of the nation's biggest homebuilders are still struggling:
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Lennar
(NYSE: LEN) recently reported buyer agreements down 15% this summer. -
Beazer Homes
(NYSE: BZH) warned recently that its fourth-quarter orders might come in lower than expected. It pointed to expiring homebuyer tax credits as part of the problem. -
Hovnanian
(NYSE: HOV) is weighed down by considerable debt. It may have trouble generating enough cash in this market to meet its payments.
Consolidation is a definite possibility. Citigroup analysts believe that bigger players such as D.R. Horton
There's at least one silver lining for investors: You've got plenty of time to study the housing market. Learn more about the companies involved, and add those that interest you to your watchlist.
In times of uncertainty, look for powerful dividend growth.
