Home construction sinks in June, but building permits gain

Tuesday, July 20th, 2010

Alan Zibel, AP Real Estate Writer

USA Today

WASHINGTON — Home construction plunged last month to the lowest level since October as the economy remained weak and demand for housing plummeted.

But building permit applications, a sign of future activity, rose 2.1% from a month earlier to an annual rate of 586,000

The Commerce Department says construction of new homes and apartments in June fell 5% from a month earlier to a seasonally adjusted annual rate of 549,000. May’s figure was revised down to 578,000.

Driving the June decline in housing starts was a more than 20% drop in the volatile condominium and apartment market. Construction of single-family homes, the biggest part of the market, dropped only 0.7%.

The slumping job market and competition from foreclosed properties have forced builders to limit construction, especially after tax credits that spurred sales expired at the end of April.

“Despite record low mortgage rates, housing is at risk of a double dip unless job growth strengthens soon,” said Sal Guatieri, senior economist at BMO Capital Markets.

Economists had had predicted that construction would fall to a rate of 580,000 and had projected that building permits would sink to a rate of 570,000, according to Thomson Reuters.

In a typical economic recovery, the construction sector provides much of the fuel. But not this time. While developers have cut back on construction and the number of new homes on the market has fallen dramatically, they still must compete against foreclosed homes selling at deep discounts.

Builders have been feeling increasingly pessimistic of late. The National Association of Home Builders said Monday that its monthly reading of builders’ sentiment about the housing market sank to 14 — the lowest level since March 2009. Readings below 50 indicate negative sentiment about the market.

Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the builders’ trade group. The impact appears in multiple industries, from makers of faucets and kitchen appliances to lumber yards.

The rate of home building is still up about 15% from the bottom in April 2009, though it’s down 76% from the last decade’s peak in January 2006.

New-home sales in May dropped 33% to the slowest pace in the 47 years records have been kept. The drop-off came immediately after the tax incentives to sign a contract on a home ended on April 30.

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