Home Construction Declines However Building Permits Surge

The Wall Street Journal

18 January  2011

Home construction in the U.S. fell to its lowest level in more than a year in December as builders cut back on new single-family homes, the latest sign of a moribund market.

Housing starts fell 4.3% to a seasonally adjusted annual rate of 529,000 from an downwardly revised 553,000 a month earlier, the Commerce Department said Wednesday. However, building permits, a gauge of future construction, surged 16.7% to an annual rate of 635,000.

Economists surveyed by Dow Jones Newswires expected overall housing starts to fall slightly in December to a rate of 554,000 from the government’s original estimate of 555,000 in November.

The results were driven by a 9.0% drop in single-family home construction to a seasonally adjusted annual rate of 417,000. Construction of dwellings with five or more units, a volatile part of the market, rose 25.9% last month.

Single-family homes, which represent more than 80% of all starts, rose a revised 5.8% in November.

Compared with December a year ago, new-home construction is down 8.2%.

The construction industry has struggled to regain its footing since the financial crisis, and home builders remain pessimistic despite signs of improvement elsewhere in the economy.

The National Association of Home Builders Tuesday said its housing market index remained flat at 16 in January. The seasonally-adjusted index, based on a survey of 420 builders, has held steady for three straight months.

Numbers above 50 mean more builders view conditions as good than as poor. The last time the home builders’ confidence gauge was above 50 was April 2006.

Home builders are competing with demand for previously owned homes and have been struggling to get credit to start projects, the association said.

New-home construction this year peaked in April, but then fell sharply with the expiration of tax incentives for first-time purchases.

Starts in November rose 3.8% from a month earlier, revised from an originally reported 3.9%% increase.

The Commerce Department data showed that regionally, housing starts in November fell 24.7% in the Northeast, 38.4% in the Midwest and 2.2% in the South. Construction rose 45.8% in the West.

Actual housing starts, without seasonal adjustments, fell to 34,300 in December from an adjusted 40,800 in November. Lumber and commodities markets watch those numbers closely to gauge demand.