Builders: No full recovery until 2010

Head of National Association of Home Builders said it could be several years before demand for homes returns to typical levels.

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By Chris Isidore, CNNMoney.com

NEW YORK (CNNMoney.com) -- Demand for new homes may not return to normal levels until next decade, according to the latest outlook from the National Association of Home Builders.

"Traditionally when housing has been in a recession, it recovers very quickly. We don't see that happening this time," said Jerry Howard, CEO of the builders' trade group. "It could be 2010 before we see sustainable, long-term stability in the home building sector."

As recently as the end of 2007, the trade group was forecasting a pick-up in the demand for new homes in the second half of this year.

But Howard said the best case scenario now calls for stabilization in the market in early summer, with no signs of improvement until early next year.

Howard also warned that more jobs will be lost in the sector this year than in 2007. Even with stronger demand for nonresidential building and public sector construction last year, the industry still lost 165,000 jobs.

But with the construction slowdown now spreading beyond housing, home builders and contractors won't be able to keep workers busy by branching out beyond residential construction as they did last year.

Howard said this year's spring selling season for homes is already shaping up to be a bad one. And while he praised legislation now gaining steam in the Senate aimed at helping demand for foreclosed homes, he said the effort is too late to make a difference this year.

"While we congratulate the Senate for taking the bull by the horns now, it would have been much more helpful for the economy in this calendar year if they had done this in the stimulus bill," he said, referring to the more than $150 billion in tax rebates passed by Congress in February.

Credits for builders, some buyers

Still, the new legislation would help hombeuilders since part of the bill calls for tax relief for many homebuilders. The bill would allow homebuilders and other firms affected the by the mortgage meltdown, such as investment banks, to use losses in 2008 and 2009 to get back taxes they owed over the previous four years. That's a change from the two years allowed under current tax law.

That provision, if passed, will cost the government between $6 billion and $28 billion in future tax revenues, according to a range of estimates. It's uncertain just how much of that money builders would see but the sector is expected to be one of the biggest beneficiaries of the bill.

Howard said many smaller privately held builders are not likely to make any money this year. So the tax credit proposed in the legislation is crucial for them.

And it will be helpful for the industry leaders too. Luxury home builder Toll Brothers (TOL, Fortune 500) is the only one of the larger, publicly traded homebuilders expected to report a profitable quarter during calendar 2008.

Some critics of the bill have said the legislation won't help consumers much, however. The bill includes little direct assistance for home buyers and home owners, other than a $7,000 tax credit for those buying homes in foreclosure.

But Howard says this could still help the housing market since it could provide incentives to people to buy foreclosed homes. Howard said the growing supply of foreclosed homes on the market is adding to the housing glut.

Builders lost out on the chance of getting even more help though. Provisions that would have given a tax credit for those buying new homes sitting vacant for a long period of time were cut during the final negotiations on the bill Wednesday. To top of page

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