Construction starts on homes rise by 8.2%

Business Times - 17 May 2008

LATEST US DATA
Construction starts on homes rise by 8.2%

Growth comes from a big jump in apartment building construction

(WASHINGTON) Construction starts on new US homes posted the biggest increase in more than two years in April, rising by a surprisingly strong 8.2 per cent and applications for new building permits turned up for the first time in five months, the Commerce Department reported in a rare spot of good news amid the worst downturn in housing in more than two decades.

The report signalled a glimmer of hope that the hard-hit housing sector still had some spring vigour.

However, confidence among US consumers fell in May to the lowest level in almost 28 years as record-high fuel prices, lower home values and fewer jobs rattled Americans.

The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 59.5, the weakest level since June 1980, from 62.6 in April. The measure averaged 85.6 in 2007. Consumer spending, the biggest part of the economy, is cooling as surging food and fuel costs erode Americans' buying power and job losses mount.

Housing starts in April, meanwhile, ran at a 1.032-million-unit annual rate, up from a revised 954,000-unit rate in March, while permits gained 4.9 per cent to 978,000 a year from a revised 932,000 in March.

Building of single-family homes, a better and more stable indicator of new home trends, continued to weaken, however. The growth came from a big jump in apartment construction.

Still, the overall gain represented recovery after a steep slump in March building pushed activity to the slowest pace in 17 years.

The surprising rebound was expected to be temporary given the headwinds builders are confronting, from slumping sales to soaring home foreclosures.

The strength in April came entirely from a huge increase in apartment construction, which can be extremely volatile from month to month. Apartment building, defined as two or more units, jumped by 36 per cent to a seasonally adjusted annual rate of 340,000 units. The larger single-family sector dropped by 1.7 per cent to an annual rate of 692,000 units.

Applications for building permits, considered a good sign of future activity, also recorded an increase in April, rising by 4.9 per cent to 978,000 units. It was the first gain in permits in five months.

But economists believe that housing construction will remain under pressure until builders have more success in reducing a huge backlog of unsold homes.

That effort is being made more difficult by a record wave of foreclosures as millions of borrowers lose their homes because they cannot keep up with escalating payments, particularly on sub-prime mortgages and loans extended to people with weak credit histories. Even with the improvement, housing construction nationwide was 30.6 per cent below the level of activity a year ago.

The National Association of Home Builders reported on Thursday that its monthly survey of builder sentiment edged down in May to a reading of 19, just above the all-time low of 18 set in December. - AP, Reuters, AFP, Bloomberg

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