Struggling housing market is bracing for more uncertainty as slow time begins

BOSTON – Residential builder stocks have heated up recently on encouraging quarterly results and new legislation that expands tax breaks for companies and home buyers.

However, the industry is hunkering down for a tough winter that could see an even bigger drop-off in activity than normal due to rising unemployment.

Builder shares were rallying Wednesday after Toll Brothers Inc. reported preliminary fiscal fourth-quarter revenue and new-home orders that easily topped analyst expectations.

The luxury builder said orders for the October quarter vaulted 42 percent from the year-ago period. Toll was able to clear out significant inventory while lower buyer cancellations also drove the upside surprise.

Beazer Homes USA Inc. shares jumped about 9 percent on Tuesday after the builder reported its first quarterly profit in three years.

Meanwhile, the government’s latest efforts to jump-start the housing market and the beleaguered homebuilding industry include the extension of the controversial $8,000 first-time homebuyer tax credit to homes under contract by April 30.

The new legislation signed into law recently by President Barack Obama allows owners who have lived in a home for at least five years to claim a $6,500 credit if they purchase a new home. Income eligibility limits for both credits were raised to $125,000 for individuals and $225,000 for married couples.

Additionally, legislation that extends the tax loss carryback period to five years from two years for corporate losses booked in 2008 or 2009 should help firm up builders’ balance sheets.

Homebuilders and other industries connected to the housing market pushed hard for the expanded stimulus.

“The tax credit has proven to be a powerful economic incentive,” said Joe Robson, chairman of the National Association of Home Builders, in a Nov. 5 statement. The action taken by Congress “will further stabilize housing and the economy by creating new jobs, stimulating home sales, reducing foreclosures, cutting excess inventories and stabilizing home prices,” he said.

The NAHB estimated the extended and expanded homebuyer tax credit will create 211,000 jobs and generate 180,000 additional home sales in the coming year.

The homebuyer tax credits have generated plenty of debate, though. Some economists attribute part of the rebound in home sales and prices this summer to the tax credit, which was originally set to expire at the end of November. Yet others say the impact is overblown.

With the expiration pushed back to April 30, the tax-credit extension seems designed to boost sales during the traditionally slower months in the housing market.

“As we move through the winter months we see headwinds for the (homebuilder) sector increasing rather than abating,” said Stifel Nicolaus analysts in a research note Wednesday.

The challenges facing the housing market include rising foreclosures and unemployment. Mortgage rates remain historically low, but affordability could take a hit if rates increase.

The legislation signed into law last week provides tax breaks for homebuilders that will result in hundreds of millions of dollars in savings for the largest home builders and boost cash levels, the Wall Street Journal recently reported.