Home construction rises but stays near record lows

4/20/2011

WASHINGTON -- Builders broke ground on more new homes nationwide last month, giving the weak housing market a slight boost at the start of the spring buying season.

Home construction rose 7.2 percent in March from February to a seasonally adjusted 549,000 units, the U.S. Commerce Department said Tuesday. Building permits, an indicator of future construction, rose 11.2 percent after hitting a five-decade low in February.

Still, the building pace is far below the 1.2 million units a year that economists consider healthy. And March's improvement came after construction fell in February to its second-lowest level on records dating back more than a half-century.

Millions of foreclosures have forced home prices down. In some cities, prices are half of what they were before the housing market collapsed in 2006 and 2007. And more foreclosures are expected this year. Tight credit has made mortgage loans tough to get. Many would-be buyers who could qualify for loans are reluctant to shop, fearing that prices will fall even further.

A sign of the battered industry is that the number of new homes finished and ready to sell dropped in March to a seasonally adjusted 509,000 units, the fewest on records dating back to 1968. And the number of homes now under construction has fallen to a four-decade low.

"Housing starts remain at an extraordinarily depressed level," said Dan Greenhaus, chief economic strategist at Miller Tabak + Co. "To put this in further perspective, a doubling of [new homes] from here would still put starts at the lowest level of any other recession."

During previous housing recessions, in the early 1980s and 1990s, new-home construction fell to more than 1 million homes a year. This year's pace is slightly more than half that.

The lack of any meaningful rebound in housing is stunting the broader economic recovery. In past modern-day recessions, housing accounted for 15 to 20 percent of overall economic growth. In the first post-recession year, 2009 to 2010, housing contributed only 4 percent to economic growth.

Since the middle of last year, home construction and sales have instead detracted from the economy.