Housing Starts, Permits Surge but Home Market Far From Healthy

Tuesday, 20 Dec 2011 08:43 AM

 

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A surge in apartment construction gave home builders more work in November. And permits, a gauge of future construction rose, spurred by a jump in apartment permits.

The rise in permits provides hope for the housing market, though 2011 is still shaping up as one of the worst years in history for homebuilders.

The Commerce Department says builders broke ground on a seasonally adjusted annual rate of 685,000 homes last month, a 9.3 percent jump from October. It's the highest level since April 2010. Still, the rate is far below the 1.2 million homes that economists say would be built each year in a healthy housing market.
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Analysts say the homebuilding industry is improving, albeit modestly, after two of the worst years in history.

"While beginning to improve, a strong, sustained recovery in the housing market, especially the important single-family sector, is still a ways off," said Steven Wood, chief economist at Insight Economics.

Last year, builders began work on roughly 587,000 homes, the worst year on record. This year, construction may top 600,000.

Though new homes represent just 20 percent of the overall home market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Renting has become a preferred option for many Americans who lost their jobs during the recession and were forced to leave their houses. The surge in apartments has provided a lift to the beleaguered housing market but has not been enough to completely offset the loss of single-family homes.

Permits rose 5.7 percent last month, boosted by a 16 percent jump in permits for apartment buildings.

Over the past year, permits for apartment buildings with five or more units have surged more than 80 percent. Permits for single-family homes, which account for about 70 percent of all homebuilding, have increased just 3.6 percent.

Demand for new homes is weak. Record-low mortgage rates and plunging home prices have done little to help.

The chief problem: Builders are struggling to compete with deeply discounted foreclosures and short sales. Short sales occur when lenders allow homes to be sold for less than what's owed on the mortgage. Few homes are selling.

After previous recessions, housing accounted for at least 15 percent of U.S. economic growth. Since the recession officially ended in June 2009, it has contributed just 4 percent.

In October, sales of new homes rose slightly, largely because builders cut their prices in the face of weak demand. Sales hit a six-month low in August. And this year is shaping up to be the worst since the government began keeping records a half-century ago.

Another reason sales have fallen is that previously occupied homes have become a better deal than new homes. The median price of a new home is about 30 percent higher than the median price for a re-sale. That's nearly twice the markup typical in a healthy housing market.

The homebuilders' trade group said this week that its survey of industry sentiment rose in December to 21, the highest level since May 2010. Still, any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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