Housing starts take unexpected tumble, fall 10.6 percent

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By Renae Merle
Washington Post Staff Writer
Wednesday, November 18, 2009; 12:57 PM

New home construction took an unexpected tumble last month, reflecting the bumpy nature of a tentative housing recovery.

Housing starts fell 10.6 percent to a seasonally adjusted annual rate of 529,000 in October, according to Commerce Department data. Analysts were expecting an increase. Housing starts were down 30.7 percent compared with the same period a year ago.

The decline probably reflects that nervous builders scaled back amid uncertainty about whether the first-time home-buyer tax credit that had buoyed sales most of the year would expire as scheduled this month, analysts said. Earlier this month, Congress extended the $8,000 tax credit and expanded it to some repeat buyers.

That same concern probably dampened new home sales last month, said David Crowe, chief economist for the National Association of Home Builders. But with the extension of the credit and the number of new homes on the market at its lowest point since 1982, there should be an uptick in housing starts and sales through 2010, analysts said.

"I think we will see a bounce up again," Crowe said. "But not substantially. . . . It will be a much slower recovery than is typical for growing out of recession."

Still, the housing market remains weak and rising unemployment could continue to put a damper on sales, analysts said. The drop-off was most severe for multi-family homes, such as apartment complexes and condominium buildings. But single-family home construction also suffered. It was down 6.8 percent last month.

Construction was down across the country. For example, in the South, which includes the Washington region, housing starts fell 9.6 percent. Also, the number of building permits issued, a measure of future activity, was down 4 percent last month.

"Builder confidence remains near its all-time lows and few firms note any improvement in buyer traffic," Mark Vitner, a senior economist for Wells Fargo, said in a research note.

Meanwhile, consumer prices rose 0.3 percent in October, according to the Labor Department. That was a bigger gain than expected, but it was largely related to an increase in energy prices.

Excluding energy and food prices, core inflation rose 0.2 percent. That was also more than analysts had expected.

The figures were also affected by a rise in used and new automobile prices. After the expiration of the government's Cash for Clunkers program this year, there was little inventory of 2009 vehicles left, leading to a faster changeover to the 2010 model year, Brian Bethune, a financial economist for IHS Global Insight, said in a research note. The government program also "led to the forced junking of nearly 700,000 used vehicles, and a dearth of used vehicles available for sale in the fall," he said.


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