January 19, 2012 in Nation/World

December ends 3rd poor year for home building

Associated Press

WASHINGTON — Builders ended 2011 with a third straight year of dismal home building and the worst on record for single-family home construction, despite modest improvement at the end of the year.

The data show that the housing market likely remains years away from full health.

In December, builders broke ground on a seasonally adjusted annual rate of 657,000 homes, the Commerce Department said Thursday. A rise in single-family home construction was offset by a huge decline in volatile apartments.

For the entire year, builders started just 606,900 homes. That’s only slightly better than the previous two years. And it’s roughly half the 1.2 million that economists equate with healthy housing markets.

Single-family home construction rose in December for a third straight month. Still, builders started just 428,600 single-family homes all year, the fewest on records dating back a half-century. In a good economy, builders break ground on twice as many.

Single-family homes are critical to a housing rebound because they account for roughly 70 percent of the market.

Analysts said the final months point to improvement.

“We expect further sustained gains in starts and permits over the next few months; a real recovery is getting started,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Most analysts say it will be years before the industry is fully recovered. And it could be bumpy, as last month’s apartment data showed.

Apartment construction plunged nearly 28 percent. That all but reversed November’s big gain.

Sales of new homes last year are likely to be the worst on records dating back half a century. Record-low mortgage rates and plunging home prices have done little to lift the market.

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.

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.

After previous recessions, housing accounted for at least 15 percent of U.S. economic growth. Since the recession officially ended in June 2009, it has contributed just 4 percent.

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.

The homebuilders’ trade group said Wednesday that its survey of industry sentiment rose in January to 25, the highest level since June 2007. Still, any reading below 50 indicates negative sentiment about the housing market. The index hasn’t reached 50 since April 2006, the peak of the housing boom.

© Copyright 2012 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Thoughts and opinions on this story? Click here to comment >>

Get stories like this in a free daily email