Between the cooling economy and tighter credit- things are rough enough for homebuilders.  They are also facing another big problem- competing with the lenders:  [Thanks L!]

In many markets, "we are no longer competing with other builders. We are competing with foreclosures," said Steve Ruffner, president of the Southern California division of KB Home.

Sales of used homes are actually rising in some regions because of foreclosures, but new-home sales fell to a four-decade low in January, down 77% from their peak in summer 2005. Altogether, home builders sold houses at a seasonally adjusted annual rate of 309,000 units in January, down from a peak of 1.4 million in July 2005.

Home builders are confronting the competition from foreclosures at a difficult time in their history. Small builders are dying by the dozens, while some large companies are staying afloat by cutting expenses and scrambling to restructure debt.

President Barack Obama’s foreclosure-prevention plan is likely to help stem the supply of bank-owned houses somewhat, and the administration’s proposed budget would extend builders a lifeline through a lucrative tax break. But the foreclosure problem won’t disappear.

"I don’t know how the builders are going to compete," said Credit Suisse analyst Daniel Oppenheim, who downgraded his ratings for Centex Corp. and D.R. Horton stock last week, partly out of concern about foreclosure competition.
 

I’ll bet there are a number of builders who don’t know how they are going to compete either.