The nomination of Wisconsin Realtor Donald I. Hovde to be undersecretary of Housing and Urban Development drew praise yesterday from the nation's organized homebuilders.

Herman Smith, the new president of the National Association of Home Builders, said Hovde's background in housing and real estate indicated that he would be "sensitive to the housing industry's production that has been decimated by high interest rates for one and one-half years."

Speaking yesterday from his office in Madison, Wis., where Hovde has been in real estate-related business for 25 years, he said that the nation's annual housing production now is 1 million units below what is needed due to lack of production in 1979 and 1980.

Hovde, who served as president of the 700,000-member National Association of Realtors in 1979, repeatedly had expressed concern about regulations at the local level having a negative effect on the building industry. In 1979 he predicted a shortfall of ownership and rental housing -- contending that the nation needs 2 million new units annually to meet demand.

Although Hovde yesterday was reluctant to make a statement on what specifically can be done to encourage housing production and ownership, prior to his confirmation hearing next week in the Senate, he said he has high hopes that housing production will be stimulated if inflation is brought under control and interest rates fall.

A long-time critic of rent controls, Hovde earlier had said that they destroy incentives to build new rental apartments and to maintain ownership of existing rental units.

Hovde yesterday said that he already has turned over his business interest in a family-owned realty firm to his brother Glenn, and also has resigned and relinquished ownership in the Partners real estate franchising operation (based in Cedar Rapids, Iowa) that he joined last year.

If confirmed, Hovde would serve as No. 2 to HUD Secretary Samuel Pierce. Hovde yesterday said that he has "admiration and respect" for Pierce, a New York City attorney who previously held a sub-cabinet post in the Treasury Department.

Hovde recently served on the Ronald Reagan housing task force headed by former HUD secretary Arla Hills. During the presidential campaign, he was Reagan's regional chairman in Indiana, Illnois and Wisconsin. Indiana, Illinois and Wisconsin. In 1981 Hovde unsuccessfully sought elective office as a Republican candidate for the Wisconsin Senate. "Mine is an esssentially Democratic district," he said.

Hovde's nomination probably is no surprise to leadership of the national Association of Realtors, which cheered the Reagan victory. NAR political action groups also contributed heavily to the campaigns waged by Reagan and other conservative candidates who advocate less federal spending and lower taxes.

If Hovde is confirmed, he would become the first prominent Realtor to hold a sub-cabinet position. (Under the Carter administration, former builder Jay Janis was the first undersecretary of HUD and Larry Simons, also a builder, served as assistant HUD secretary and FHA commissioner.)