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Single-family building dips to slowest in 17 years

July 17, 2008 2:04:57 PM PDT
A beat-the-deadline rush to file permits for apartment construction in New York City lifted housing starts to unexpectedly high levels in June, but it was no cause for rejoicing. Construction of single-family homes nationwide fell to the slowest pace in 17 years. Builders started work on single-family homes at an annual rate of 647,000 units last month, a drop of 5.3 percent from the previous month, the Commerce Department reported Thursday. It marked the slowest pace for singe-family activity since January 1991, another period when housing was going through a severe downturn.

That decline in single-family construction was in contrast to a 42.5 percent surge in apartment building, an increase that was attributed to a change in New York City building codes that triggered a rush by builders to take out applications before new regulations took effect on July 1.

In the way the government presents the housing statistics, a big increase in one area can greatly influence the overall figure because the change for one month is multiplied by 12 to get an annual figure.

With the big surge in apartments in New York, total construction rose by 9.1 percent to a seasonally adjusted annual rate of 1.066 million units, still 26.8 percent below the level of a year ago. Economists said they expect that figure to resume a downward slide in coming months given all the problems facing housing at the moment.

The housing industry, which has been in a slump for more than two years, is struggling to cope with record levels of unsold new and existing homes. That glut is being expanded by swelling levels of foreclosures which are dumping even more houses on the market. Buyers are reluctant to purchase a home with home prices still falling sharply and even those buyers who are ready to commit are having trouble qualifying for a loan as lenders tighten standards in response to soaring mortgage delinquencies.

Banks and other financial institutions are struggling to cope with billions of dollars of losses on bad mortgages. The Bush administration and the Federal Reserve announced on Sunday that they were putting together a support program for Fannie Mae and Freddie Mac to try to stave off serious troubles for the two mortgage giants which hold or guarantee more than $5 trillion of the nation's mortgages, almost half of the total.

Treasury Secretary Henry Paulson is lobbying Congress for quick approval of the plan that would temporarily empower the government to extend unlimited lines of credit to Fannie and Freddie and to buy their stock if needed to bolster their reserves against losses. The companies' shares have plummeted because of fears about their financial stability.

All the housing and financial market turmoil has raised fears that the country could be pushed into a recession, a development that would prolong the already severe housing correction.

A drop in energy prices over the past three days has raised hope, however slim, that those fears may be overblown. Oil prices dropped below $130 a barrel for the first time in more than a month Thursday and natural gas futures tumbled more than 8 percent. On Wall Street, stocks shot higher as fuel prices fell.

Over the past few months, Wall Street has rallied before only to fall again as concerns about the economy have returned.

The prolonged slump in housing remains at the epicenter of the country's troubles. The National Association of Home Builders reported this week that builder sentiment fell to an all-time low in July as demand for new homes weakened further.

"Job-market losses, deepening problems in the finance area and sinking home values, aggravated by the wave of foreclosures, are all contributing factors that are keeping potential buyers on the sidelines," David Seiders, chief economist for the home builders, said Thursday.

Pat Newport, an economist with Global Insight, predicted that total housing starts will fall to 933,000 this year, down 33 percent from last year. That total for the year would be the lowest level since World War II.

The report on housing construction showed that applications for building permits, considered a good sign of future activity, rose by 11.6 percent to a seasonally adjusted annual rate of 1.091 million units. This increase was also skewed by a big rise in applications in New York, however.

Housing construction soared by 102.6 percent in the Northeast, reflecting the New York City surge, but fell by 12.8 percent in the Midwest, 9.4 percent in the West and 1.4 percent in the South.

Separately, the Labor Department reported that the number of newly laid-off people signing up for jobless benefits rose by 18,000 last week to 366,000, the highest level since late June. The increase was below the number that economists had been expecting.

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