The housing market is limping toward recovery. For planners, engineers and contractors whose business is driven by residential construction, the pace is painfully slow.

That was a key message that emerged at the homebuilding industry’s largest trade show, Jan. 19-22 in Las Vegas. Predictably, attendance is about half of what it was in 2006 at the International Builders’ Show.

One economist termed the builders that did attend “survivors.”

The housing industry remains weighed down by foreclosures, unemployment, tightened lending standards and pricing instability. There were 3.95 million foreclosure filings nationwide at the end of 2009, with an additional 2.8 million default notices, scheduled foreclosure auctions and bank repossessions, reports RealtyTrac, an Irvine, Calif.-based based online foreclosure tracking service. It marks a 21% increase in total properties from 2008 and 120% more than in 2007.

“Currently, with housing prices fluctuating and new foreclosures coming on the market every month, homebuilders have no guarantee of an adequate return on investment,” says Edward Sullivan, chief economist for the Skokie, Ill.-based Portland Cement Association.  “And there is little to suggest that this will change in the near future.”

“Banks are risk averse,” Sullivan says. “Twenty-five percent of all mortgages are underwater. Foreclosure rates will increase during the first half of this year. It's playing catch-up. Thirty percent of banks are taking over foreclosures.”

SULLIVAN

Federal tax credits artificially inflated recent home sale activity, creating a potential sales payback during the second half of 2010. New single-family home construction starts consequently are expected to see only modest growth, with much of the activity taking place during the tail-end of the year.

"I don't think delinquency rates have peaked yet," says Freddie Mac chief economist Frank Nothaft, who forecasts new 2010 housing starts in the 770,000 to 780,000 range. "That's usually six to 12 months after employment recovery begins. We'll see them peaking in the second half of 2010."

The National Association of Home Builders is forecasting 610,000 single-family housing starts in 2010, up 37.7% compared to last year. But home builders are unlikely to commence new construction until pricing volatility stabilizes and inventory levels drop to a five month level. (New home inventories currently stand around 235,000 units nationwide or 7.9 months’ supply). 

“I still have tremendous optimism for a market recovery, but I'm much more cautious of when it will happen,” Sullivan says. “I expect a 15% to 20% increase in housing starts but not until later this year and into 2011.”