16 May 2012

Homebuilding Goes Up

Story first appeared in the Los Angeles Times.

U.S. builders began work on more homes last month, evidence that the battered housing market is slowly healing.

The Commerce Department said Wednesday that builders broke ground at a seasonally adjusted annual pace of 717,000 homes in April from March. That's 2.6 percent more than March's total, which was revised higher. Construction rose for both single-family homes and apartments.

Building permits, a gauge of future construction, fell last month from a 3 1 / 2 year high to a seasonally adjusted annual rate of 715,000. But that was because of a 23 percent drop in the volatile apartment category. Permits for single-family homes rose almost 2 percent.

Even with the gains, the rate of construction and the level of permits requested remain roughly half the pace considered healthy. But the increase, along with rising builder confidence and stronger job growth, is a hopeful sign that the home market may finally be starting to recover nearly five years after the housing bubble burst.

Builders have grown more confident since last fall, in part because more people have expressed interest in buying a home. In May, builder optimism rose to the highest level in five years, according to the National Association of Home Builders/Wells Fargo builder sentiment index.

Construction Project Management teams for homebuilders have reported improving sales and higher traffic from prospective buyers, the survey showed. A gauge measuring confidence in sales over the next six months also rose to 34 from 31.

Recent job gains have likely made it easier for more Americans to purchase a home. Employers have added 1 million jobs in the past five months. And unemployment has dropped a full percentage point since August, from 9.1 percent to 8.1 percent in April.

Mortgage rates, meanwhile, have fallen to record lows, making home-buying more affordable. Still, many would-be buyers are having difficulty qualifying for home loans or can't afford larger down payments required by banks.

Though new homes represent just 20 percent of the overall home market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

There are some hurdles to a smooth recovery: Builders are struggling to compete with deeply discounted foreclosures and short sales — when lenders allow homes to be sold for less than what's owed on the mortgage.

Another reason sales have fallen is that previously occupied homes have become a better deal than new homes. The median price of a new home is about 30 percent higher than the median price for a re-sale. That's nearly twice the markup typical in a healthy housing market.

Another report found that U.S. factory output increased in April, helped by a gain in auto production. Busier factories have driven stronger hiring this year and helped the economy grow.

The Federal Reserve says factory production rose 0.6 percent in April, erasing a 0.5 percent decline in March.

Half of the April increase reflected a 3.9 percent jump in the production of motor vehicles and parts. That's the fifth consecutive gain at auto plants and the biggest rise since January.

Overall industrial production increased 1.1 percent in April. In addition to the big gain at factories, output at mines and utilities both showed strong gains in April.

Factory output has risen 18.3 percent since it hit a low in June 2009, the month the recession ended.

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