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Downturn continuing for home builders

Slow business means fewer jobs

In a troubling sign for the economy, construction of new homes plummeted in April. According to industry statistics, each new home built creates an average of three jobs for a year and generates about $90,000 in taxes. In a troubling sign for the economy, construction of new homes plummeted in April. According to industry statistics, each new home built creates an average of three jobs for a year and generates about $90,000 in taxes. (Seth Perlman/ Associated Press)
By Derek Kravitz
Associated Press / May 18, 2011

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WASHINGTON — For home builders, it hardly feels like an economic recovery.

Nearly two years after the recession ended, the pace of construction is inching along at less than half the level considered healthy. Single-family home building, the bulk of the market, has dropped 11 percent in that time. And there’s no sign it will improve soon.

Builders are struggling to compete with waves of foreclosures that have forced down prices for previously occupied homes. The weakness is weighing on the economy.

Though new homes represent a small portion of overall sales, they have an outsize effect on the economy: Fewer new homes mean fewer jobs.

Skip Howes, a builder in Woodland Park, Colo., has managed to stay in business only after laying off two workers in the past few years. He now runs a two-man operation: The other man is his son.

Before the housing boom, he built as many as six homes a year. Last year, he built only one. This year, he’s had no home projects.

“If I can’t diversify, and if things don’t improve,’’ Howes said, “I might have to lay off my son.’’

The Commerce Department said yesterday that new-home construction plummeted last month to a seasonally adjusted rate of 523,000 homes a year. A big drop in volatile apartment-building construction pulled down the monthly figures. Tornadoes and flooding also disrupted construction projects throughout the South.

This year could end up with fewer new homes than last year and only slightly more than 2009 — the two worst years on records dating back a half-century. Those two years benefited from a temporary home-buying tax credit.

Yesterday’s disappointing construction data contributed to a sell-off on Wall Street. The Dow Jones industrial average fell by more than 150 points before recovering more half of its losses to end the day down 68 points.

The nation’s largest builders — including PulteGroup, Lennar, D.R. Horton, and KB Home — have deeper pockets. So they have survived the turbulent stretch by cutting prices and offering more incentives.

Small and midsize builders haven’t been as fortunate. Many small builders are staying in business either by working on a few choice properties or focusing on remodeling and renovation projects.

“Everybody is feeling the pinch,’’ said Greg Ugalde, a midsize builder in Torrington, Conn., who is building a third of the homes he built in years before 2003, when the housing boom began.

After the six economic downturns between 1960 and 2001, construction jumped an average of 35 percent in the first 22 months, according to Credit Suisse Securities.

But that hasn’t been the case since the Great Recession ended in June 2009. Single-family building actually fell 11 percent in that time.

Most builders say they don’t expect a housing recovery until they see fewer homes in foreclosure and looser credit requirements. In the meantime, Howes, the Colorado homebuilder, said he’s broadened his services to include painting and remodeling.

“We need to diversify in order to survive,’’ Howes said. “It’s not like it used to be and we need to try new things.’’