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Housing construction, permits hit record lows
WASHINGTON -- A modest rebound in single-family home construction in April raised hopes Tuesday that the three-year slide in housing could be bottoming. But with the supply of unsold homes bulging, foreclosures rising and prices falling, no broad recovery is expected until next spring at the earliest.
The Commerce Department said construction of new homes and apartments fell 12.8 percent last month to a seasonally adjusted annual rate of 458,000 units -- the lowest pace on records going back a half-century. Applications for new building permits dropped 3.3 percent to an annual rate of 494,000, also the lowest on record.
All of last month's weakness, though, came in the volatile multifamily part of construction. Single-family construction and permits both rose, a signal that this bigger sector of home construction is starting to stabilize.
Construction of single-family homes rose 2.8 percent to an annual rate of 368,000, following a 0.3 percent gain in March and no change in February. Building permits for single-family homes were up 3.6 percent to a rate of 373,000 last month.
"U.S. housing remains very weak, but the stability in single-family units is encouraging," Benjamin Reitzes, an economist at BMO Capital Markets, said in a research note.
Multifamily construction plunged 46.1 percent to an annual rate of 90,000 units after a 23 percent fall in March. Permits for multifamily construction dropped 19.9 percent to 121,000 units.
Analysts said apartment construction is being hurt by a glut of condominiums on the market and by tightening credit conditions for commercial real estate.
They also said a real rebound for single-family construction remains distant as heavy job layoffs and record levels of foreclosures will continue to weigh on this sector.
The number of unsold homes on the market at the end of March fell 1.6 percent from a month earlier to 3.7 million, not including new homes, according to the National Association of Realtors.
"Progress is under way in working off the inventory of unsold, unoccupied homes and condos," Gary Stern, president of the Federal Reserve Bank of Minneapolis, said Tuesday in prepared remarks to local business people in Willmar, Minn.
But since sales remain sluggish, it would take almost 10 months to rid the market of those properties, compared with about 6.5 months in 2006, according to the Realtors data.
"Home building conditions remain weak," Paul Dales, U.S. economist for Capital Economics, said in a note to clients. "The excess supply of new homes for sale is still high and heavy discounts on foreclosed properties have made new homes less appealing. Any rebound in starts will be modest."
On Wall Street, stocks rose modestly. The Dow Jones industrial average added about 25 points in afternoon trading and broader indices also edged up.
The nation's current recession, the longest since World War II, began with a collapse in housing that triggered rising loan losses and the worst crisis in the financial sector in seven decades. The government has provided billions of dollars in support to try to stabilize the financial system and get banks to resume more normal lending to consumers and businesses.
Housing construction and sales are expected to bottom out in the second half of this year but economists are forecasting that prices will keep falling until next spring.
The median price of a new home sold in March was $201,400, down 23 percent from a peak of $262,600 two years earlier. The median price is the midpoint, which means half of the homes sold for more and half for less.
In April, housing construction fell 30.6 percent in the Northeast, the largest drop for any region. Housing starts dropped 21.4 percent in the Midwest and 21.1 percent in the South.
The West was the only region showing strength with a 42.5 percent jump in housing starts.
The National Association of Homebuilders reported Monday that its survey of builder confidence increased for the second straight month in May, reflecting growing optimism on the part of many builders.
The Washington-based trade group's index rose two points to 16, the highest reading since September. Even with the rebound, the index remains near historic lows. Index readings lower than 50 indicate negative sentiment about the market.
The housing slump has affected related industries such as home remodeling, but two nationwide chains reported better-than-expected earnings this week.
Home Depot Inc. said Tuesday its first-quarter profit climbed 44 percent on fewer charges, and the nation's largest home improvement retailer beat Wall Street's expectations despite lower sales. Smaller rival Lowe's Cos. on Monday reported a quarterly profit that also beat analysts' expectations and the company boosted its full-year outlook.
But the nation's top three homebuilders reported financial results earlier this month that give little hope the spring selling season will be strong enough to stop the red ink.
Pulte Homes Inc. and Centex Corp., which agreed to combine this year to become the largest U.S. homebuilder, said that while their quarterly losses narrowed, they continued to be battered by falling prices and a glut of unsold homes.
D.R. Horton Inc., currently the industry's No. 1 home builder, also reported that its losses had shrunk, but the company said it still faces challenges from foreclosures, high inventory levels, tight homebuyer credit, low consumer confidence and job losses.
The economy contracted by more than 6 percent in the final three months of last year and the first three months of this year, the steepest six-month downturn in a half-century. Analysts believe the recession will end sometime in the second half of this year but they are looking for the jobless rate, now at a 25-year high of 8.9 percent, to keep rising into 2010.
Stern said the early stages of an economic recovery are likely to be subdued. "But with the passage of time -- as we get into the middle of 2010 and beyond -- I would expect to see a resumption of healthy growth," he added.