Homebuilders Slog Ahead On A Long Road To Recovery

The home building industry is slogging along on a path to recovery. But it will be awhile before the industry is back to what feels like “normal.”

Permits to build new homes closed in on the highest level in more than three years in February, a sign that the housing market is slowly healing from the worst collapse since the Great Depression. New building permits surged 5.1 percent to a seasonally adjusted annual rate of 717,000 units last month, the Commerce Department said Tuesday.

The pickup in permits is a signal that builders are seeing stronger demand. Much of the new construction is geared toward multifamily housing, which jumped 21 percent last month as strong demand continues to push rents higher.

“This report is one of the more encouraging new construction reports we have seen in the last four years,” said Patrick Newport, an economist at IHS Global Insight. “Still, as the Fed reminded us in its (policy) statement last Tuesday, the housing sector remains depressed.”

Single-family home construction faces a major headwind as the backlog of unsold existing homes continues to weigh on prices. Housing starts last month fell by 1.1 percent, depressed by a 9.9 percent drop in single-family homebuilding.

As often happens in winter, weather patterns around the country had an impact on the pace of building. Housing starts were up in the Midwest and South last month and down in West and Northeast.

Despite the steady gains, the homebuilding industry still has a long road back to the boom years, when starts peaked an annual rate of 2.3 million units. Falling home prices in many parts of the country have discouraged some would-be home buyers.

“The recovery in housing starts is still being hampered by stiff competition from foreclosures and short sales. Paul Diggle, a housing economist at Capital Economics

Diggle estimates the pace of starts will continue to pick up this year, reaching an annual rate of 750,000 this year.

That pickup in residential construction is expected to help boost to economic growth for the first time since 2005. While the direct impact of home building accounts for just 2.5 percent of gross domestic product, new home buying helps boost other industries from appliance manufacturing to landscaping.

Economists estimate that for every one house built, about 2.5 jobs are created. Those new jobs also help create demand for homes, which helps push the homebuilding recovery forward,

"We are going to see housing (construction) add to GDP in 2012," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut. "There is still a glut of existing homes in areas where there are a lot of foreclosures. But the supply of new homes is getting tighter so if there is sustained demand for them we could see construction continue."


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