This year may not be a great year for homebuilders as existing inventory floods the market through foreclosure resales and pessimism prevails about the spring home-selling season. According to Goldman Sachs (GS), the first month of the year produced numbers indicating weak demand for new houses. Based on January mortgage application data, the firm expects the spring selling season to be lackluster relative to the strength of home-purchasing activity over the last two decades. The firm said the trend in mortgage purchase applications signifies only a 25% increase in unadjusted new home sales, which “translates into flat stated new-home sales.” In 2010, there was $1.5 trillion worth of originations, only 31% of which are attributable to purchase volume, according to the Mortgage Bankers Association. The trade group is predicting a 30% increase in purchase transactions, but a 36% drop in overall lending for 2011. “We have a negative tactical stance on the homebuilders heading in to spring selling season as we believe that the rally has run its course,” Goldman wrote in a report published Friday. “The spring selling season is unlikely to be robust.” The lack of new home inventory, in addition to the abundance of existing housing inventory, is likely to shift market sale share between the new and existing homes. According to Goldman Sachs, consumer preferences over the last two years have shifted to a desire to move in homes much faster. Because of this, new home inventory has faltered. “Inventory helps create urgency for sellers (our coverage universe) as builders prefer to not hold onto large levels of inventory for longer than 90 days,” the company said. “In the absence of seller urgency and limited buyer urgency (no government stimulus or fear of rising home prices), we are concerned about the prospects for a robust selling season.” Goldman also believes homebuilder stocks have gotten too far ahead of the housing recovery. Currently, homebuilder stocks supervised by Goldman Sachs are at the same level they were last March, the firm said, when housing starts were significantly higher. “With the broader group having the same level of book value today as last year, this that the difference between equity prices today and roughly 13 months ago is the multiple, which reflects the anticipated shape of the housing recovery,” Goldman said. “Without a return of starts and sales to last spring’s levels we believe that multiples will compress.” With all this in mind, Goldman is lowering its 2012 new-home sales estimate to 425,000 from 485,000. Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR. Disclosure: The author holds no relevant investments.

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