Realty Check

AP

After that surprising surge in February, housing starts went back to their usual freefall again last month. The nearly 11 percent drop was larger than expected, but inevitable given the huge supply of new and existing homes already on the market. Permits were down as well, and don’t get me wrong, I consider that all a good thing, because until we get through all that excess inventory, we’re not going to achieve a real housing recovery.

And let’s talk about that recovery for a second.

The NAHB’s chief economist told me yesterday that the one thing really weighing on builders right now is lack of credit.

Builders have dumped a lot of land, but they also still have a lot of land, and without the ability to build on it, they’re losing even more cash than they have to. “Going vertical” which is trade talk for building a house, is the only way a builder is going to see any relief on the land, even if they’re selling that house at a bargain basement price.

Housing analyst Ivy Zelman, of Zelman Associates, hit the nail on the head when she joined us on CNBC Reports last night:

“We are all so focused on the consumer foreclosures, and we all know that the Obama administration is trying to mitigate that, but let's talk about the builder and the developer foreclosures. Let's talk about, that unfortunately my industry is dropping like flies; we are seeing private builders, which account for the lion share of the industry, that are not able to get funding from their banks, because the banks have cut them off, that are unfortunately working for cash, which is a negative feedback loop that the market doesn't appreciate.”

Everyone’s so busy focusing on the recovery, they’re missing the fact that the builders are now woefully unprepared for said recovery. Affordability is fantastic, demand is supposedly out there, all pent-up, but without help from all those bailed-out banks, builders will inevitably hit a wall.

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