Home builders are worried that the recent rise in new-home sales is temporary. Rising unemployment, the lifting of the foreclosure moratorium, and the soon-to-be-used-up state and federal tax incentives for homebuyers will soon put a stop to new-home sales.

More foreclosed properties will hit the market in the coming months and builders will likely need to set their new home sales prices at or below break-even levels just to clear inventory; and as the resale market picks up, the demand for new homes will bottom out.

As Christopher Thornberg, an economist and principal at Beacon Economics in Los Angeles states, “It makes no sense for home builders to produce more homes when there are plenty of foreclosures to satisfy demand.”

first tuesday take: A massive shadow inventory of vacant homes and condos is about to hit the market. We’ve all seen the number of NODs shoot up after the foreclosure moratoriums were lifted, and a rise in the number of foreclosures is not more than four to five months behind. The last thing the real estate industry needs are new starts, regardless of the effect it would have on the jobless rate.

As we’ve said before, instead of tax rebates to keep home prices up and builders in business, the government should consider subsidizing builders and their employees directly by paying them to leave their undeveloped land vacant. The logic is identical to government subsidies for farmers to keep their land fallow to avoid the over-production of crops. For the government to put people back to work producing what has already been overbuilt—pre-built by three or four years—is to blindly ignore the bust that just occurred.

Re: “Inland new homes sales are up but foreclosures hit at profitability” from The Press Enterprise