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Housing starts surge in June

By Cezary Podkul,

New-home construction popped to a five-month high in June, surprising economists and fueling hope that the long-struggling U.S. housing market could at last begin to add strength to the economic recovery.

Work started on 629,000 houses in June, an increase of 15 percent from May and nearly 17 percent from the corresponding period last year, according to data released Tuesday by the Commerce Department. Economists had predicted 575,000 housing starts for the month.

All regions of the country — Northeast, Midwest, South and West — saw increases in home-building activity, according to the data, and both single-family and multi-family homes posted monthly increases in each region.

After a mix of natural disasters and spiking energy prices dampened growth in the first half of the year, the housing number “was one sliver of economic data that we’ve had in recent months that was actually better than expected,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. At the very least, “it doesn’t appear like the housing market is falling into a deeper hole,” he added.

On the contrary, the postive June figures mark “the beginning of a recovery in housing” that “will last for many years into the future,” said Brian Wesbury, chief economist at First Trust in Illinois, an investment advisory firm.

The key reason for optimism, Wesbury said, is that June was the first month since January 2006 that saw an increase in the total number of homes under construction, meaning more new homes were being started than being completed.

A faster pace of home-building could translate to a broader pickup in the economy because new construction creates demand for building services, furnishings, appliances and other goods and services. Robert Denk, senior economist at the National Association of Home Builders, a trade group in Washington, estimates that each new house generates about three full-time jobs.

“When we get back on track and we start building and buying houses again, that’s going to create a lot of jobs,” he said.

But Denk said he thinks it could be 2013 or 2014 before starts of single-family homes, which accounted for about 70 percent of June’s 629,000 housing starts, reach a more normal level of 1.2 million per month, indicating a healthy economy.

The main reason for the drag, according to Weiss Research real estate analyst Mike Larson, is the current state of the job market. With the national economy adding only 18,000 jobs in June, Larson said it is difficult to see a speedy pickup in the market.

“People who don’t have jobs don’t buy houses. It’s that simple,” he said, which is also why “we’ve had these proclamations that ‘this has been the bottom’ before and it hasn’t amounted to much.”

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