May 29 (Bloomberg) -- New home construction in the U.S. may take until 2011 to return to last year's level, said David Seiders, chief economist for the National Association of Home Builders in Washington.

Monthly construction starts would need to jump by 21 percent to reach Seiders's benchmark for full recovery, which is 1.85 million. There were 1.53 million in April, the Commerce Department said. At the height of the five-year housing boom in January 2006, construction began on 2.29 million homes.

``We've fallen way below trend because we soared way above trend during boom times,'' Seiders said in an interview. ``The upswing will be relatively slow, unlike earlier cycles.''

The inventory of unsold homes is the largest since the Chicago-based National Association of Realtors started counting them in 1999 and house prices have suffered the steepest drop since the Great Depression, according to the realtors' group. Defaults and foreclosures also may rise as about $650 billion of loans to subprime borrowers, those with poor or limited credit histories, reset at higher interest rates by 2009.

``We're still being hit pretty hard by the subprime-related mortgage market problem,'' Seiders said. ``One of the biggest unknowns right now is how serious the change on the mortgages side will be on home sales.''

Sales of new homes rose 16 percent in April, the highest increase since 1993, the Commerce Department said last week.

`The Champagne'

The biggest gain in new-home sales in 14 years was made possible by homebuilders who cut prices more in April than in any month since 1970. The median new-home price fell 11 percent to $229,100 from $257,600 a year earlier, the reported showed.

Declines in home prices in 20 U.S. metropolitan areas accelerated in the 12 months ended in March as the supply of homes exceeded demand, a private survey showed today. Home values dropped 1.4 percent from March 2006, after declining 0.8 percent in the year ended February, according to a report today by S&P/Case-Shiller.

Sales of previously owned U.S. homes fell in April to the lowest level in almost four years, the National Association of Realtors said last week.

``I'll break out the champagne a year from now after the resetting of the mortgage rates and defaults come in less than what we're fearful about,'' said Susan Wachter, a real estate professor at the Wharton School at the University of Pennsylvania in Philadelphia. ``For now, for the sake of the wider U.S. economy, the homebuilders have to start clearing out their inventory.''

Cutting Prices

Atlanta-based Beazer Homes USA Inc. was offering houses in the first quarter at a development about 44 miles outside Phoenix, Arizona, for $136,990, down 36 percent from the year- earlier price of $215,490, said Samantha Morris, senior consultant in Houston-based Metrostudy's Mesa, Arizona, office.

Builders ``have written off any hope'' of 2007 being a good year, said John Burns, president of John Burns Real Estate Consulting in Irvine, California. ``When you start offering consumers a good deal, you start selling homes.''

Larry Zacks, president of closely held Putnam County Builders Inc. in Mahopac, New York, said he put a 3,150-square- foot house on the market in February for $799,000 and had to reduce the price, first to $749,000, then to $699,000 and then to $659,000.

``We finally sold it for $649,000,'' Zacks said. ``Things are moving, it's just a question of finding the right price. In a glutted market, buyers have a huge selection, so they don't have to be forgiving. If they don't like one thing about it, they can go down the street.''

Price Slashing

Prime Home Builders, a closely held company in Fort Lauderdale, Florida, is advertising a 23 percent discount on a new four-bedroom townhouse with two and half bathrooms in Naples, Florida. The price was slashed to $344,169 from $449,258 in a development where about half the units have been sold, said Keith Thompson, a marketing consultant with Prime Home Builders.

``It was under contract and the buyer forfeited the deposit, which is pretty common in this market,'' Thompson said. ``We're putting it out at a much lower price by rolling the deposit over to the next buyer.''

Horsham, Pennsylvania-based Toll Brothers Inc., the largest U.S. luxury home builder, reported that fiscal second-quarter profit slid 79 percent. Chief Executive Officer Robert Toll said on May 24 he was ``a little more confident'' about the market, adding: ``I would emphasize a little.''

Stocks Fall

Toll Brothers' stock fell 7 percent this year through May 25, compared with the 25 percent slide of Hovnanian Enterprises Inc. of Red Bank, New Jersey. Shares of Pulte Homes Inc. in Bloomfield Hills, Michigan, declined 17 percent, Dallas-based Centex Corp. dropped 14 percent, Miami-based Lennar Corp. fell 13 percent and D.R. Horton Inc., based in Fort Worth, Texas, declined 11 percent.

Subprime loans are given to borrowers with bad or incomplete credit histories. About eight in 10 subprime mortgages made in 2005 and 2006 had adjustable rates, according to Credit Suisse Group, meaning that borrowers will have to pay higher monthly interest rates after a pre-determined period, usually two years.

To contact the reporters on this story: Bob Ivry in New York at bivry@bloomberg.net; Brian Louis in Chicago at blouis1@bloomberg.net.

Last Updated: May 29, 2007 11:54 EDT