In the midst of the worst U.S. housing market downturn since the Great Depression, home builders have slowed down their building activities. They've also been slicing through their inventories of unsold homes by slashing prices even at the expense of profits, all to pay off their own debt and keep afloat.
Now, in addition to higher mortgage rates, skittish buyers and competition from other builders, they face a rising number of homes whose owners are unable to sustain their mortgage payments.
"In some regions, the supply coming to the market from home builders is now smaller than the supply coming from foreclosures," Deutsche Bank senior economist Torsten Slok said.
The situation in the housing market remains gloomy, and the home builders seem to be waiting for the foreclosure "tsunami" to pass, Slok said.
But many say it may get worse as delinquency risk is likely to rise over the next 18 months, according to First American CoreLogic, which tracks and analyzes real estate data.
"This is the central issue for housing in 2008 and maybe for 2009 as well," said Buck Horne, Raymond James analyst.
The number of homes that have been repossessed rose to 660,000 in April, according to First American CoreLogic. Based on April's figures from the National Association of Realtors on existing homes for sale, 14.5 percent, or one in seven homes for sale in April were the result of a foreclosure in which the home was repossessed by a lenders.
Foreclosures are highest in areas such as Florida, California and Nevada, where builders rushed to attract first-time home buyers when the market was hot.