Housing construction points to market recovery

There were more signs of a moderate housing recovery Friday as the government reported an increase in construction and building permits.

The Commerce Department said the pace of new construction rose roughly 2 percent from February to March. That increase, however, was thanks to a 19 percent increase in apartments, which offset a 1 percent decline in home building.

But more encouraging, applications for building permits - a good gauge of future activity - rose 7.5 percent to the highest level since October 2008, when the financial crisis hit with full force.

The housing market is recovering from the worst downturn since the Great Depression. Construction is down by more than two-thirds from the unsustainable boom in late 2005 and early 2006, but has gradually recovered 30 percent from the bottom in April of last year.

"While the March report was very positive news, we are still a long, long way off from a normal market," said David Crowe, chief economist of the National Association of Home Builders.

He expects single-family home construction to rise about 25 percent this year to 550,000. But that would still be less than half the normal level, and Crowe doesn't expect building to reach that 1.5 million range for another three years.

While the housing sector is currently a weak economic engine, each new home built creates about three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders.

"We need a decent or at least stable construction sector if job growth and the economy can get back to normal, and that process is proceeding slowing," said Joel Naroff, chief economist at Naroff Economic Advisors.

The increase in housing construction tempered news this week that a record number of Americans lost their homes through foreclosure in the first three months of the year, according to RealtyTrac Inc.

The cheaply priced foreclosed homes have put builders at a disadvantage, held back hiring in the construction industry and helped restrain the broader economic recovery.

The glut of bank-owned properties has also hurt new home sales, which hit a record low in February. Figures for March sales will be released April 23, and analysts are expecting to see a healthy increase.

If not, "builders will scale back and single-family housing starts could remain flat for several more months," said Patrick Newport, an economist at IHS Global Insight.

The strength in construction last month came from the South, where activity jumped 18 percent. Building activity plunged 28 percent in the Midwest, 8 percent in the Northeast and dipped 2 percent in the West.

Builders have revved up bulldozers because buyers need to sign contracts by the end of the month to qualify for a tax credit. First-time owners get up to $8,000 and current owners get $6,500 if they relocate.

The recent spate of dealmaking has made homebuilders more optimistic. The National Association of Home Builders said their housing market index jumped this month to the highest level since September. The industry's longer-term outlook, however, remains cautious.

Overall, building activity in March registered a seasonally adjusted pace of 626,000 homes and apartments, government data showed. Home construction clocked in at 531,000, and apartments at 95,000.