New home construction down 1% in July

(WASHINGTON) Construction of new US homes dipped slightly last month, missing expectations, in a sign that the building industry's recovery from the housing bust is likely to be bumpy and gradual.

The Commerce Department said yesterday that construction started on homes and apartments fell one per cent last month to a seasonally adjusted annual rate of 581,000 units, from an upwardly revised rate of 587,000 in June. Economists polled by Thomson Reuters expected a pace of 600,000 units.

Builders slammed the brakes on construction after the housing bubble burst, and in April, housing starts plunged to the lowest point in a half-century. Then construction began a recovery, rising to the highest level in seven months in June before slipping again last month.

But the industry is still a long way from a return to normal. Last month's housing starts were still nearly 38 per cent below last year's levels.

The decline in construction was led by a drop of more than 13 per cent in multi-family properties. Construction of single-family homes rose one per cent last month.

Applications for building permits, an indicator of future activity, fell 1.8 per cent to an annual rate of 560,000 units.

Economists expected an annual rate of 580,000 units.

The industry is seeing increased demand from consumers who want to take advantage of a new federal tax credit for first-time homebuyers. It covers 10 per cent of a home price up to US$8,000. It is set to expire at the end of November.

While numerous signs have emerged that the US housing market has stabilised after the worst housing recession since the Great Depression, there are several threats to any recovery.

The unemployment rate, now 9.4 per cent, is expected to surpass 10 per cent, leaving even more homeowners unable to pay their mortgages.

Mortgage rates are still at attractive levels, but they could rise, making buying a home less affordable.

Nevertheless, builders have been growing more confident. The National Association of Home Builders said on Monday that its housing market index rose to the highest point in more than a year in August. The trade association's index rose one point to 18, a level not seen since June 2008.

Meanwhile, wholesale prices dropped sharply last month, and over the past 12 months fell by the largest amount in more than six decades of record-keeping.

The Labor Department said yesterday that wholesale prices dropped 0.9 per cent last month. That's triple the decline economists had expected and was driven by big decreases in both energy and food costs. Over the past 12 months, the prices of goods before they reach store shelves fell 6.8 per cent. - AP

Source: Business Times, 19 Aug 2009