While home resales have actually increased in many parts of the nation due to the rate of foreclosure, new homes sales reached a forty-year low in January. Builders are simply unable to compete with the prices offered on similar, almost-new homes offered by owners and lenders who have no choice but to sell. Builders are responding with a variety of tactics, building smaller, low priced homes, and offering price reductions or low interest rates to lure buyers. When the competition gets too fierce, however, it will cost more to build a home than it can be sold for. When that occurs, builders will be forced to stop building.
Re: “Foreclosed Houses Haunt Home Builders”, from Wall Street Journal