Constructing a Recovery?

By Renae Merle
Washington Post Staff Writer
Wednesday, March 18, 2009

New-home construction jumped unexpectedly in February, rebounding from record lows but failing to shake skepticism that the housing market will remain weak throughout this year.

Economists dismissed the increase as an aberration, noting that the uptick was largely tied to multi-family construction such as apartments and condos, a traditionally volatile market. There are still far too many new homes for sale, and it could take months, if not longer, before the housing market stabilizes, they said.

But the figures helped ignite a rally on Wall Street that sent the Dow Jones industrial average up 2.5 percent, to 7395.70 -- its highest close in nearly a month.

Housing starts climbed 22 percent in February, to 583,000 units at an annualized rate, according to Commerce Department data released yesterday. That is a reversal from the continued slowdown that analysts had expected but 47 percent below the same period a year earlier.

New construction of apartment complexes and other buildings with five or more units surged 80 percent. That was probably related to a break in the weather in February, analysts said, after colder-than-normal conditions in December and January in some parts of the country. Starts for single-family houses increased 1 percent.

Construction has been depressed to such low levels that any increase can register as a significant jump in activity, said Patrick Newport, U.S. economist for IHS Global Insight. Nationally, home construction remains at the third-worst level since 1947, he said.

Based on regional data dating to 1959, it is the fourth-lowest reading in the Northeast, despite an 89 percent increase in housing starts, and the third-worst for the Midwest, which had a 59 percent increase. "These are still horrible numbers," Newport said.

Construction starts grew 30 percent in the South, which includes the Washington region. It remains at its third-lowest level.

In the West, which includes some of the hardest-hit parts of the country, such as California and Nevada, housing starts continued to decline, falling 25 percent. They are at their lowest level on record, Newport said.

More significant was a 3 percent increase in housing permits, analysts said. They were up 11 percent for single-family homes, the biggest jump since 1991 and the first increase in 10 months. That could point to another increase in housing starts in March, analysts said, noting that permit applications reflect future activity.

But they remained cautious, arguing that it would take several months for the housing market to stabilize. Home prices continue to fall, and new homes are competing against a glut of existing properties selling at a depressed prices.

"There are some nuggets of decent news in here -- the pace of deterioration is easing," said Mike Larson, a real estate analyst for Weiss Research. "But demand for new homes remain downright anemic. . . . If it's truly a trend change, we're going to need to see a few months of bottoming activity."

And builders remain anxious, according a monthly survey from the National Association of Home Builders released Monday. Expectations for sales in the next six months remain at a record low, and an index gauging traffic of prospective buyers declined, the report found.

"We're still on a bit of downward trajectory, but we may be approaching the bottom," said Bernard Markstein, senior economist and director of forecasting of the National Association of Home Builders. "Maybe this is the bottom, but it's a bit early, and I wouldn't want to get that optimistic."

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