Has Housing Found New Life in New Construction?

Builders cheer, but foreclosure spree could rain on consumers' parade.

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Things might be looking up for home builders, according to a slew of recent reports, but that optimism probably won't make it downstream to consumers this year, experts say.

New construction was up almost 25 percent last year, the Commerce Department reported Thursday, buoying builder confidence, which rose to its highest level since mid-2007, according to the National Association of Home Builders.

But the housing market is in for a flood of foreclosures this year, which will likely keep the lid on any gains in home values and prolong the wait for a solid housing recovery.

[Read: Home Refinancing Heats Up.]

"Builders and investors may cheer the construction numbers, but consumers care about prices and foreclosures," Jed Kolko, chief economist at Trulia, wrote in an E-mail. "In 2012, prices will stagnate or fall in most markets, and we'll see a new wave of foreclosures after a robo-signing settlement."

Nevertheless, economists expect the upward trend in new construction to continue, just at a slow and steady pace.

"I expect just modest increases, nothing to get fiery hot about," says David Crowe, chief economist at the National Association of Home Builders. "Nothing to rave about, but encouraging since we've been in the doldrums."

Looking ahead, the biggest factor that could stunt further gains in the construction sector is the inability of prospective buyers to sell their current homes.

"That's the single largest [problem] they cite," Crowe says. "That's the toughest part because essentially you have two parties trying to sell a homeā€”the builder to the new buyer and the buyer, his old home."


Twitter: @mmhandley

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