Housing starts up on gains in multi-family sector, but high foreclosures a drag on industry

Housing starts up on gains in multi-family sector

WASHINGTON — Housing construction posted a better-than-expected performance in March, rising to the highest level in 16 months. The gain was due solely to multifamily homes, which account for less than 20 percent of the market.

The Commerce Department report Friday said construction of single-family homes, the most important segment of the market, fell 0.9 percent to an annual rate of 531,000 units. But permits for single-family construction, a gauge of future activity, were up.

The increase in housing starts tempered news this week from RealtyTrac Inc. that a record number of U.S. homes were lost to foreclosure in the first three months of the year. The low selling prices of those foreclosed homes have put builders at a disadvantage, held back hiring in the construction industry and helped restrain the broader economic recovery.

“We need a decent or at least stable construction sector if job growth and the economy can get back to normal, and that process is proceeding slowing,” said Joel Naroff, chief economist at Naroff Economic Advisors.

The Commerce report Friday said overall construction rose 1.6 percent to a seasonally adjusted annual rate of 626,000. That was higher than the 610,000 level economists expected. In addition, the government revised February’s numbers to show a 1.1 percent gain rather than the initially reported drop of 5.9 percent.

Applications for building permits rose 7.5 percent to an annual rate of 685,000.

The weakness in single-family construction was offset by an 18.8 percent surge in the smaller multifamily sector, which rose to a seasonally adjusted annual rate of 95,000 units. Analysts do not expect this strength to continue given a multitude of problems facing commercial real estate at the moment. That includes high apartment vacancy rates and rising foreclosures of commercial properties.

Paul Ashworth, an economist at Capital Economics, noted that even with the March gain, the level of housing construction is still slightly more than one-fourth of where it was during the boom years in the middle of the decade. He said this burst of activity could well fade after home buyer tax credits expire at the end of this month.

The strength in March came from the South. Construction activity there jumped 18.2 percent, the best advance in 10 months. Building activity plunged 28.4 percent in the Midwest, was down 8.3 percent in the Northeast and dipped 2.1 percent in the West.

The National Association of Home Builders said Thursday its housing market index, which tracks industry confidence, jumped four points to a reading of 19 in April, the highest level since September.

Builders are reporting a pickup in sales and customer traffic as homebuyers rush to qualify for expiring tax incentives. The tax credits — $8,000 for new buyers and $6,500 for current owners — expire at the end of this month.

Many economists believe the tax incentives will boost the number of buyers now but lead to a drop in sales in the second half of the year.

Home sellers are also having to cope with banks tightening up on lending standards and a sizable supply of unsold homes.

In addition to the first-quarter spike in foreclosures, households facing foreclosure increased 16 percent in the same period and 7 percent from the last three months of 2009.

More homes were taken over by banks and scheduled for a foreclosure sale than in any quarter going back to at least January 2005, when the foreclosure listings firm began reporting the data.