DCN ARCHIVES

May 20, 2010

U.S. housing starts rise in April; building permits fall

WASHINGTON, D.C.

Construction of new homes in the U.S. rose more than expected in April but new building permits fell sharply, signalling the industry’s rebound could be short-lived.

The results show builders ramped up to meet demand from buyers seeking to take advantage of federal tax incentives, but are now scaling back their plans.

Building permits, a gauge of future activity, sank 11.5 per cent to an annual rate of 606,000, the lowest since October 2009, the Commerce Department said Tuesday. Analysts were expecting a slight dip to a rate of 680,000.

Home sales have rebounded this year. They were helped by low mortgage rates and two government tax credits — $8,000 for new buyers and $6,500 for current owners who buy and move into another property. To receive the tax credit, borrowers had to have a signed offer by April 30 and must close the deal by the end of June.

“There is little doubt the housing numbers have been boosted,” by the tax credit, wrote Dan Greenhaus, chief economic strategist with Miller Tabak + Co.

Without the tax credits, many experts anticipate home sales will slow in the second half of this year. High unemployment and tight standards for mortgage lending continue to keep many buyers on the sidelines.

Construction of new homes and apartments rose 5.8 per cent last month to a seasonally adjusted annual rate of 672,000. The increase was from an upwardly revised March level of 635,000.

The result was the highest since October 2008 and was driven by a 10 per cent increase in the single-family market. Housing construction is now up more than 40 per cent from the bottom in April 2009 but down 70 per cent from the peak in January 2006.

Analysts surveyed by Thomson Reuters had expected construction to rise more modestly to a rate of 650,000.

Nevertheless, a survey Monday showed homebuilders are more optimistic. The National Association of Home Builders said its housing market index, which tracks industry confidence, rose three points this month to 22, the highest reading since August 2007. Readings below 50 indicate negative sentiment about the market.

Associated Press

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