US housing starts hit 7-month high - Construction rise signals housing bottom

US housing starts hit 7-month high - Construction rise signals housing bottom
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: July 17 2009 15:09 | Last updated: July 17 2009 15:09
http://www.ft.com/cms/s/0/115ee962-72d8-11de-ad98-00144feabdc0.html


New US residential building picked up in June, rising to its highest level in seven months, as low construction costs and government incentives lure buyers to break ground.

Housing starts jumped by 3.6 per cent last month to an adjusted annual rate of construction of 582,000, commerce department figures showed on Friday. The rise was more than economists expected and was fuelled by a sharp increase in construction of single-family homes.

Friday’s results continue a sharp turnaround for home building and signal the stricken housing market may be bottoming out. In April, new construction fell to a 50-year low before rebounding by 17.3 per cent in May.

Many economists, however, see the monthly rise as a mixed blessing. Some argue that renewed building activity is a sign of health in the housing market and the wider economy, but others contend that the overhang of housing inventory needs to be slashed for a recovery to occur.

“We are inclined to reserve judgment on whether this is the start of a real rebound or just a return to the pre-Lehman trend,” said Ian Sheperdson, chief US economist at High Frequency Economics. “Certainly the still-massive inventory overhang in the new home market does not suggest homebuilders need to increase production.”

Single-family housing starts rose for the fourth month running in June, climbing by 14.4 per cent to 470,000. Multi-family home construction, meanwhile, fell by 25.8 per cent after rising by more than 60 per cent in May.

On the year, housing starts have fallen by 46 per cent as builders have been wary of breaking new ground amid plunging real estate prices. During the height of the construction boom, monthly housing starts peaked at 2.27m in January 2006.

New construction activity was greatest in the northeast and midwest, rising by 28.6 per cent and 33.3 per cent, respectively. In the west and south, housing starts fell by 14.8 and 1.4 per cent.

Building permits, which signal future construction, rose by 8.7 per cent last month to 563,000. Compared with June 2008, building permits are off by 52 per cent.

The strong construction data could lift the spirits of homebuilders who have begun to feel more optimistic as buyers take advantage of low interest rates, first-time buyer tax credit and low prices. On Thursday the National Association of Home Builders’ said its index of homebuilder sentiment rose from 15 to 17 in July, a 10-month high.

Analysts warn that with foreclosure rates rising and home prices falling, builders will still struggle to compete with record levels of affordability for existing homes.

“Continued labour market weakness and what will remain a steady stream of foreclosures will keep downward pressure on house prices and ensure that builders in an increasingly broad geographic range of markets will see steady competition from low-priced foreclosures,” said Richard Moody, chief economist at Forward Capital.