Housing starts grow in April

But most of 8.2% construction increase came from volatile apartment sector

Associated Press

May 17, 2008

WASHINGTON - Construction of new homes increased by the biggest percentage in more than two years in April, a rare spot of good news amid the worst downturn in housing in more than two decades.

Analysts, however, played down the increase, noting that all the strength came from the volatile apartment sector. They said the painful housing slump is far from over as a record flood of foreclosures continues to add to the sizable stockpile of unsold homes.

The Commerce Department reported yesterday that housing construction rose by 8.2 percent last month to a seasonally adjusted annual rate of 1.03 million units. While apartment construction rose by 36 percent, building in the much larger single-family sector of the market fell by 1.7 percent, the 12th consecutive monthly decline, pushing single-family activity down to a 16-year low.

"It is definitely too early to uncork the champagne on the long and winding road to more healthy housing-market conditions," said Brian Bethune, an economist at Global Insight. He said he did not expect housing activity to stabilize until the end of this year.

Len Blum, managing director of investment bank Westwood Capital, said the slump in housing will run for another year because of a number of problems, from banks tightening lending standards to the reluctance of many people to commit to a home purchase at a time when home prices are still falling.

"I think estimates that we are near the bottom of the housing correction will prove to be overly optimistic," he said. "We have had a housing bubble and it will take some time to deflate."

The prolonged two-year slump in housing is occurring after a five-year boom that pushed sales and home prices up to record levels. The correction has proven to be a serious drag on the overall economy, raising worries that the country could be in danger of falling into a recession.

A second report yesterday showed that consumer confidence, as measured by a University of Michigan/Reuters survey, fell to a 28-year low of 59.5 in a preliminary reading for May, down from 62.6 in April. The drop was blamed in part on rising concerns about higher gas and food prices.

Applications for building permits, considered a good sign of future activity, recorded an increase in April, rising by 4.9 percent to 978,000 units.