Housing construction posts small rise; construction permits plunge

Associated Press • May 16, 2007 at 8:24 AM

WASHINGTON - Home building posted a small gain in April, but permits for future construction plunged by the largest amount in 17 years, a sign the nation's housing industry is still in a deep slump.

Construction of new homes and apartments rose to a seasonally adjusted annual rate of 1.528 million units in April, an increase of 2.5 percent from the March level.

Even with the improvement, housing construction is 25.9 percent lower than a year ago, reflecting the amount of the slide since a five-year boom in housing ended last year.

In a troubling sign for the future, builders cut their requests for new construction permits by 8.9 percent in April. That was the sharpest drop since a 24-percent fall in February 1990, another period when housing was going through a significant downturn. The slide pushed the annual rate for permits down to 1.429 million units, the lowest level in nearly 10 years.

While the April increase in actual construction was the third consecutive advance, analysts said the far more telling figure was the steep slide in permits, given that they are viewed as a far better indicator of where housing is headed.

"The drop in permits is one of the biggest on record. It suggests the contraction is housing is not over and has some months to play out," said Bill Hampel, chief economist for the Credit Union National Association.

On Wall Street, the Dow Jones industrial average shrugged off the worrisome news on housing to surge higher, climbing by 103.69 points to close at 13,487.53, the 23rd record close of the year. Housing, which had enjoyed record sales in both new and existing homes for five straight years, saw the boom end dramatically in 2006 with many formerly red-hot sales areas suffering big declines in sales and prices.

The slump in housing has been a drag on the overall economy, pushing business growth down to a lackluster 1.3 percent in the first three months of this year, the weakest performance in four years.

A survey by the National Association of Home Builders released on Tuesday indicated that there are more troubles to come as builder sentiment fell to an index reading of just 30, matching the low point in the current downturn set last September.

David Seiders, chief economist for the home builders, said the survey found that the rising defaults in the subprime mortgage market were adding to concerns about the ability to reduce a huge inventory of unsold new homes and causing builders to cut back on their plans.

He said he had changed his forecast to show a bigger 22 percent drop in construction starts this year with 2008 showing a small 4 percent improvement with the current slump ranking as the most severe since the 1990 housing downturn.

"The housing sector got grossly overheated during the boom period and there is a lot of payback going on now," he said.

The 2.5 percent rise in construction starts in April reflected a 1.6 percent increase in single-family homes and a 6.3 percent jump in construction of multifamily units.

By region of the country, the increase was led by a 31.3 percent surge in the Northeast and a 7.8 percent increase in the West. Construction activity was down 14.2 percent in the Midwest and 0.1 percent in the South.

In other economic news, the Federal Reserve reported that industrial output rose by 0.7 percent in April, a stronger-than-expected showing that reflected a continued rebound in manufacturing and a big jump in output by the nation's utilities. Output had fallen by 0.3 percent in March. Manufacturing increased 0.5 percent in April with production of autos, computers and electronic equipment showing big gains while output at utilities surged by 3.5 percent, reflecting colder-than-normal weather during the month. --- On the Net: Housing starts: http://www.census.gov/newresconst Industrial production: http://www.federalreserve.gov AP-CS-05-16-07 1820EDT

Recommended for You

    Kingsport Times News Videos