Some Home Builders Run Out of Lifelines

Five years into a housing meltdown, questions are arising about how long some publicly held home builders can survive without significant improvement in the market. Sales of newly built homes, which peaked at 1.3 million units in 2005, were running at an annual rate of just 298,000 units in July and are on pace to post the lowest count this year since record keeping began in 1963. So far, home builders have been able to stave off disaster by sharply cutting employees and shrinking their product mix to compete with existing homes. Several Obama administration stimulus measures also helped the builders, including a tax break that allowed the builders to pocket $2.6 billion in tax refunds and a home-buyer tax credit that temporarily lifted sales last year. But the lifelines are running out, and home sales aren't expected to pick up anytime soon. "The market is not deep enough or big enough to support all the builders," said Alex Barron, a founder and analyst with the Housing Research Center, an independent research firm in El Paso, Texas. "There needs to be some consolidation. I don't think that means [mergers or acquisitions]. I just think that means there has to be a shakeout."

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