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Unbuilt homes sell like crazy
The number of houses for sale even before they're built has jumped 47% the past 12 months, adding to worries that overbuilding and speculation could bring the housing boom to a bust.

The Census Bureau says that 88,000 houses were for sale but not yet started in April, the latest data available, vs. 60,000 a year earlier and 40,000 five years ago. The numbers track houses scheduled to be built in developments where buyers can view plans or models. April's number is the highest since the government began tracking it in 1973.

The appetite for new homes is strong: There is about a 4.1-month supply of new houses for sale, up just 0.1% from 12 months earlier. That's low.

But a glut of new houses could end the housing boom — and, possibly, stick builders and speculators with undeveloped property if the boom goes bust. "Builders have a long pipeline for development that will be difficult for them to shut down, even when demand begins to weaken," says Mark Zandi, chief economist for "They are geared for growth, and it will be hard for them to pull back."

Another worry: Unbuilt homes for sale could be used for flipping, buying in hopes of selling for a quick profit. In pre-construction flipping, a speculator puts a deposit down on an unbuilt home and sells it on completion — or even before.

A survey released Monday by the National Association of Home Builders (NAHB) shows that investors accounted for 11% of single-home purchases in 30 metro areas with hot real estate markets, vs. about 3% of purchases from 12 large national home builders.

Most major contractors are taking steps to forbid flipping. "Flipping concerns economists and regulators and those interested in not seeing their home values go down," says Robert Toll, CEO of Toll Bros.

A half-finished development could have contractors and speculators competing for buyers. According to the NAHB, 64% of builders surveyed wouldn't let buyers sell the home or contract before closing. Also, 82% said they would sell only to buyers who would occupy the homes.

Some builders are looking the other way, and they are touted on Internet sites such as "Major builders are being strict about their own development, but it won't do much good if the developer across the street isn't," says G. Kenneth Heebner, manager of CGM Realty Fund.

So far, the increase in unsold, unbuilt houses hasn't translated into a glut of homes for sale. But Zandi and others worry that unsold homes eventually will weigh on the market. "Builders are incredibly optimistic about long-term demographic fundamentals," he says. "It suggests they won't turn cautious when demand does begin to weaken."

Others see the rise as one more sign of a housing bubble, along with the sharp climb in interest-only and adjustable-rate mortgages. "It shows that we are where we've never been before," says James Grant, editor of Grant's Interest Rate Observer.

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