Construction of new homes up 10.5% in August


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Construction of newly built homes jumped a surprising 10.5% in August from July, the government said Tuesday, though most of the increase came from the volatile apartment building sector.

Housing sales and new construction have struggled in recent months with the expiration of a popular tax credit for buyers, and most economists predict weakness for housing this year. The number of new permits filed for construction, another closely watched indicator of building activity, was up 1.8% in August over July, the Commerce Department said.

‘It is hard to get too excited,” said Paul Dales, U.S. economist for Toronto-based Capital Economics. “Homebuilding activity remains at an astoundingly weak level.’

August housing starts were at a seasonally adjusted annual rate of 598,000 units, the second consecutive rise in the pace of new building starts since June. The estimate puts starts at 2.2% above the August 2009 rate.


Most of the increase came from buildings with five units or more. Single-family-housing starts in August were at a rate of 438,000 units, a 4.3% increase from July.

Dales noted that the rise in overall housing starts is still 12% below April’s 679,000-unit pace, when new construction was being influenced by the buying spree brought on by the federal tax credit.

‘Homebuilding is still being depressed by the high number of vacant homes, mounting expectations of renewed price falls and economic constraints on households,’ he said. ‘The little demand for housing there is has been channeled into existing homes, whose prices have been dragged down by foreclosures.’

Sales of previously owned homes have also stumbled since the tax credit’s expiration. The National Assn. of Realtors will report August figures for previously owned homes on Wednesday.

Ian Shepherdson, chief U.S. economist for High Frequency Economics, said the construction numbers indicate that the plunge in sales is likely to begin abating.

‘It is reasonable to believe, in our view, that the post-tax credit plunge in housing activity, both sales and construction, is over, but we do not expect to see a strong recovery anytime soon,’ he said. “Activity will likely creep higher as great affordability pulls people into the market, but that’s about the best we can hope for in the foreseeable future.”


-- Alejandro Lazo