U.S. home building slows again

Uncertainty over tax credit, housing glut drag down industry

WASHINGTON – The budding economic recovery isn’t getting much help from the home-building industry, which normally creates jobs and drives growth when a recession ends.

Uncertainty over whether a homebuyer tax credit would be extended weighed down construction last month – a sign of how much the fledgling recovery depends on government support.

Home building unexpectedly plunged to its lowest point since April, the Commerce Department said Wednesday. The figures show that builders fear there aren’t enough buyers to soak up the glut of unsold homes already on the market – a supply magnified by record-high foreclosures.

Congress renewed the homebuyer tax credit earlier this month and broadened its reach. But even with government aid, the weakness of the housing sector is dragging on the economy.

“It will take a while before residential construction begins to contribute meaningfully to growth,” Jennifer Lee, an economist at BMO Capital Markets, wrote in a research note.

The tepid recovery is also holding down inflation. While consumer prices edged up faster than expected in October, they remained lower than they were a year ago. And inflation is expected to stay subdued.

The Labor Department said consumer prices rose 0.3 percent in October, a bit more than the 0.2 percent economists had expected. Core inflation, which excludes energy and food, rose 0.2 percent, compared with expectations for a 0.1 percent rise.

The higher figure was driven by another increase in energy prices and the biggest jump in new-car prices in 28 years. The prices of used cars and trucks also rose by the most since September 1980.

On Wall Street, stocks dipped after the unexpected drop in home construction and disappointing forecasts from technology companies.

The modest drop came a day after major stock indicators closed at 13-month highs, including the Dow Jones industrial average, which has risen nine of the past 10 days.

The Dow lost more than 32 points in afternoon trading Wednesday, and broader indexes also dipped.

The report on home construction said building of homes and apartments fell 10.6 percent in October to a seasonally adjusted annual rate of 529,000, from an upwardly revised 592,000 in September. Economists polled by Thomson Reuters had expected a pace of 600,000.

“There has not has not been much improvement in the underlying demand for new and existing homes,” said Mark Vitner, senior economist with Wells Fargo Securities. “That’s a warning for 2010.”

So is a decline in applications for building permits – a gauge of future activity. Applications fell 4 percent to an annual rate of 552,000 units. That was the lowest since May and missed analysts’ expectations of 580,000. Still, applications for single-family homes fell only 0.2 percent.

The National Association of Home Builders said this week that its housing market index remained unchanged in November, reflecting a cautious outlook from home builders. The trade association said its index stood at 17 for the second straight month; readings below 50 indicate negative sentiment.

With construction levels low, however, the inventory of unsold homes has been dropping. At September’s sales pace, it would take about 7.5 months to sell off all the new homes on the market. That’s down from a peak of 11 months last fall. But it’s still short of a healthy level of around a six-month supply.

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