New Home Construction Unexpectedly Declines in July

By Renae Merle
Washington Post Staff Writer
Tuesday, August 18, 2009; 11:51 AM

New-home construction unexpectedly declined last month, despite continued improvement in the market for single-family homes, according to government data released Tuesday.

Housing starts fell by 1 percent from June's level, to an annualized rate of 581,000. compared with June Construction was down 37.7 percent from a year earlier, according to the Commerce Department data. Analysts had expected construction starts to increase.

But those figures were dragged down by a 16.7 percent month-to-month drop in construction of multi-unit homes like apartment buildings, traditionally a volatile market. This market continues to be hobbled by the difficultly in securing financing and competition from homeowners unable to sell their properties who then decide to rent their homes, said David Crowe, an economist for the National Association of Home Builders.

Meanwhile, construction of single-family homes rose 1.7 percent compared with June, to an annual pace of 490,000 units. That is the fifth consecutive monthly increase in the single-family market. In another hopeful sign for that market, while construction permits were down overall, they rose 5.8 percent for single-family homes.

The housing market has been buoyed by falling home prices and an $8,000 first-time-buyer tax credit, analysts said. The uptick in permits, for example, reflects growing confidence among builders that the overall market is improving, Crowe said. "That kind of increase suggests that some momentum for the rest of the market is beginning," he said.

The Northeast had the biggest increase in single-family-home construction, 14 percent, while single-family starts were up modestly in the West and down in the Midwest. In the South, which includes the Washington region, construction was flat, up 0.8 percent.

"Construction activity remains low, historically speaking. But evidence continues to mount that the worst of the declines for this cycle are behind us," Mike Larson, real estate analyst at Weiss Research, said in a research note. "Still, that doesn't mean we're going to see a huge resurgence in construction. After all, buyers still have plenty of homes to choose from, and distressed and foreclosed properties will continue to flood the market well into 2010."

Separately, the Producer Price Index -- the prices paid by business to make goods -- was down .9 in July, compared to an increase of 1.8 percent in June, the Labor Department said. Factoring out the volatile food and energy prices, core PPI was down .1 for July.

Producer prices was down a whopping 6.8 percent over the past year, which is worrisome. It marked the biggest decrease in more than 60 years of record-keeping.

Staff writer Frank Ahrens contributed to this report.

© 2009 The Washington Post Company