Little Hope For Homebuilder Profits

Homebuilder stocks took a tumble after an analyst said there was little reason to believe they would have profits before 2011.

Why is the housing market still so depressed with little hope of turnaround? There's a tax credit for buying a new home as a primary residence. Mortgage rates are low. But there are still a large number of foreclosures and little reason to believe that this stream will narrow.

High unemployment rates and little prospect of sustained economic growth means that comparatively few people are in a position to buy homes.

The Washington Post says:

NEW YORK — Shares of U.S. homebuilders slid Monday after an analyst cut his estimates on several companies and said most in the industry won't turn a small profit until late 2011.

Deutsche Bank analyst Nishu Sood said he expects the housing market to remain weak as benefits from a federal tax credit disappear, unemployment continues to rise and the housing supply grows on a jump in foreclosures. Mortgage rates will also rise when the Federal Reserve stops buying mortgage-backed securities, he said.

To prop up the housing market and help the economy recover from the worst recession since the 1930s, the Federal Reserve has been engaged in an extraordinary level of support, spending $1.25 trillion on mortgage-backed securities, which has driven down rates on home loans.