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Outlook isn't bright for builders of homes ; After 2 horrible years, comeback seen as slight

U.S. homebuilders are coming off their two worst years in more than a half-century, and the outlook for this year is only slightly better.

Economists say that it could take three more years before the industry begins building homes at a healthy rate. In the meantime, the housing downturn is dragging on the broader economy, with one-quarter of the jobs lost since the recession began in the construction field.

Builders normally help lead the economy out of a recession. Construction projects fuel growth, and that leads to more hiring.

But a year and a half after the recession officially ended, builders are struggling to compete in markets flooded with unsold homes -- many of them foreclosures that are depressing prices.

"Housing in the past has always been one of the key drivers getting the economy back on track. It is not going to happen this time because there is a huge glut of homes out there," said Patrick Newport, U.S. economist at IHS Global Insight.

Homebuilders broke ground on a total of 587,600 homes in 2010, slightly better than the 554,000 started in 2009, the Commerce Department reported Wednesday. Those are the lowest annual totals on records dating back to 1959.

And the pace is getting worse. The Commerce Department reported Wednesday that builders started work at a seasonally adjusted annual rate of 529,000 new homes and apartments last month. That's a drop of 4.3 percent from November and the slowest pace since October 2009. A big reason for the decline is that people are buying fewer single-family homes, which represent nearly 80 percent of the market. Construction of single-family homes fell by 9 percent to an annual rate of 417,000 units in December.

In a healthy economy, builders break ground on more than 1.5 million homes a year. Newport said he doesn't expect that level of home construction until 2014. He expects that builders will start work on 685,000 homes this year, 1.09 million in 2012 and 1.43 million in 2013.

Many potential buyers are holding off, worried that home prices haven't bottomed out. A record 1 million homes were lost to foreclosure last year, and that is weighing on prices. Foreclosure tracker RealtyTrac predicts that 1.2 million homes will be repossessed this year.

Builders are having a hard time competing with the depressed prices, and that has led to fewer construction jobs.

Nearly 1.9 million construction jobs have vanished since the recession began in December 2007. That's 26 percent of the 7.2 million jobs lost during that period.

Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Homebuilders' stock shares fell in trading Wednesday. Lennar Corp., D.R. Horton and PulteGroup shares all dropped by nearly 3 percent.

Building permits, considered a good barometer for future activity, rose by 16.7 percent in December to a seasonally adjusted annual rate of 635,000, the best pace since March.

But builders pulled more permits in New York, Pennsylvania and California ahead of code changes in 2011 -- a factor that likely influenced the spike.

"Some builders went ahead in December with projects to beat the change," said Jennifer Lee, an analyst at BMO Capital Markets. Lee points out that the biggest gains were in the Northeast, which was up by 80.6 percent, and the West, up by 43.9 percent.

In December, housing construction fell in all parts of the country except the West, where activity surged by 45.8 percent. Construction dropped by 38.4 percent in the Midwest and was down by 24.7 percent in the Northeast and by 2.2 percent in the South. Severe winter weather likely affected activity in the Northeast and the Midwest.

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