Home Builders Weathering a Storm

The disappearance of first-time buyers may have resulted in the double-dip currently seen in housing.

The market is looking a bit forbidding, as of late. As of this week, data shows that in February new home sales has slumped to a low not seen in almost half a century, while previously owned home sales have also decreased.

The first-time home buyer tax credit stimulated the increase in activity seen last year; however, now, new home media sales prices are back to the level seen in 2003. This says that the credit didn't produce sustained results and this is not good news for home builders. In fact, the nation's largest home building companies are due to report fiscal first-quarter earnings but have yet to do so. Nevertheless, earnings for the first quarter ending in February are expected to be decreases in earnings and revenue.

Companies that may be hardest hit are those who targeted entry-level buyers. This is a segment that is particularly soft in the current market.

First-time buyers only made up about 30% of total home-buying activity in January-February, far below the historical average of 40%.

Although homes today are more affordable, finances are tight, altitudes are negative, and potential home buyers are concerned about falling prices - all which curbs demand. What little demand exists is mostly flowing to the rental sector.

This makes home builders that cater more to the move-up segment of the market more desirable.

Although some home builders will find a way to escape the worst of the market's problems, it's certainly going to call for strength and fortitude to keep from sinking.