Home Construction Up in April, Permits Down

April saw a bigger-than-expected gain in home construction, but permits for future groundbreakings were down sharply.

Source: Source: WSJ | Published on May 18, 2010

According to the Commerce Department, housing starts fell in the West, but rose in the other three regions.

Groundbreakings rose 5.8% to a seasonally adjusted 672,000 annual rate compared to the prior month, the department said Tuesday. Economists surveyed by Dow Jones Newswires expected starts to rise 3.8% to a level of 650,000. March starts, originally seen up 1.6%, were revised to an increase of 5.0%.

Year over year, overall housing starts in the U.S. last month were 40.9% higher than the pace of construction in April 2009.

The report was mildly positive for the sickly housing industry, which is struggling to recover.

The April report showed building permits decreased 11.5% to a 606,000 annual rate. Economists had expected permits to drop by 0.4% to a rate of 677,000. March permits increased 5.4% to 685,000. Building permits are a sign of future construction.

However, a housing group Monday said builder confidence in the market rose in May. The National Association of Home Builders index of confidence climbed to its highest in nearly three years, even though a government tax credit designed to spur buying expired April 30. The surprising increase eased fear the market might stagnate or lose ground without the subsidy.

New-home sales in March shot 26.9% higher. The tax incentive, historically low prices, and low interest rates have helped take some sting out of the high joblessness plaguing the U.S. and scaring Americans from making big purchases.

Aside from unemployment, builders are dealing with a lack of financing and rising building materials costs. Used homes are cheaper than new ones and the wave of foreclosures has driven prices even lower.

Builders are also cautious because of a surplus of unsold homes, including a so-called "shadow" inventory made up of property withheld from the market because of low prices.

Still, D.R. Horton Inc. recently reported a surprise fiscal second-quarter profit. And Pulte Group Inc. said its first-quarter loss narrowed, aided by increased home sales and low land-related charges.

Tuesday's report showed single-family housing starts in April compared to the prior month rose 10.2% to 593,000. In March, single-family starts climbed 2.1%, revised up from a previously reported 0.9% decline.

April apartment construction -- housing with two or more units -- fell 18.6% to 79,000. Within that multi-family category, groundbreakings of homes with five or more units were 23.6% lower.

Regionally, housing starts in April rose 7.0% in the South, 23.9% in the Northeast and 16.7% in the Midwest. Starts dropped 13.3% in the West.

The Commerce Department said actual housing starts rose in April compared to the prior month, to 60,900 from 54,400. The unseasonally adjusted number is closely watched by the lumber and commodities markets as a sign of demand.