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Home construction jumps in June after dismal spring

- Associated Press - Tuesday, July 19, 2011

WASHINGTON (AP) — Builders broke ground on more single-family homes and apartments in June, helping the battered construction industry gain a little life after a dismal spring.

The Commerce Department said Tuesday that builders began work on a seasonally adjusted 629,000 homes last month, a 14.6 percent increase from May.

Still, that's roughly half the 1.2 million homes per year that economists say must be built to sustain a healthy housing market. Jennifer Lee, a senior economist at BMO Capital Markets, called the gains "just a blip in the overall flat-lining trend of homebuilding activity."

"We have to see a rebound in job creation to sustain a recovery in housing," she said.

Much of the increase in June came from a surge in apartment construction, a volatile part of the industry. That sector jumped 31.8 percent last month.

Single-family home construction rose 9.4 percent. It was the biggest increase since June 2009, when the recession ended, but analysts said the pace of 453,000 homes per year was still too depressed to signal a turnaround.

"The underlying trend of single-family housing starts shows no signs of improving in a significant manner any time soon," said Joshua Shapiro, chief U.S. economist at MFR Inc.

Building permits, a gauge of future construction, increased 2.5 percent.

Home construction rose in every part of the country. The biggest gains were in the Northeast and Midwest. In the Northeast, the building pace spiked 35.1 percent, and in the Midwest it rose 25.3 percent. In the South, it rose 10.6 percent, and in the West it increased 5.4 percent.

Though new homes represent just 20 percent of the overall home market, they have an outsized impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

The weak housing industry also is holding back the U.S. economy. In past modern-day recessions, housing accounted for 15 percent to 20 percent of overall economic growth. This time around, between 2009 and 2010, housing contributed just 4 percent to the gross domestic product.

Cash-strapped builders are struggling to compete with deeply discounted foreclosures and short sales. A short sale is when lenders allow borrowers to sell their homes for less than what is owed on the mortgage.

New-home sales fell in May to a seasonally adjusted pace of 319,000 homes per year. That's far below the 700,000 homes per year that economists consider healthy.

One reason is that previously occupied homes are a better deal than new homes. The median price of a new home is more than 30 percent higher than the median prices for a resale. That's more than twice the markup in healthy housing markets.

Loans are also harder to get. Most private lenders are requiring 20 percent down payments and higher credit scores for the lowest mortgage rates.

In the past month, President Obama has said the housing market has "been most stubborn to us trying to solve the problem." And last week Federal Reserve Chairman Ben S. Bernanke said the troubles facing home construction and sales were more persistent than previously thought.

The builders trade group said Monday that its survey of industry sentiment rose to 15 in June. Any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.

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