New Home Construction Remains Weak

January 24, 2011 (Chris Moore)
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The latest new home construction data released by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD) reveals new home construction dropped in December to its lowest level in more than a year as the feeble housing sector ended 2010 on a weak note. Private building of new homes dropped 4.3% in December from a month earlier to a seasonally adjusted annual rate of 529,000, the lowest level of housing starts since October 2009.

The weak economic data surprised many experts who had expected housing starts to be closer to 550,000 units. Housing starts ended the year 8.2% below December 2009.

The construction weakness was the result of single-family housing starts which were at a rate of 417,000; 9.0 percent below the revised November figure of 458,000. It was the lowest level of single-family home construction since May 2009. The December rate for units in multi-family buildings with five units or more was 102,000.

“From what we’ve heard from builders, they’re not very hopeful for recovery in 2011,” said Mark Vitner, a Wells Fargo Securities economist. “The first half of the year, it looks like housing’s going to be dead in the water.”

Builders have been battered by a recession that has included tighter lending standards and competition from an excessive supply of previously owned homes partly fueled by the flood of foreclosures coming on the market.

As fewer Americans opt for home ownership, demand for apartments has been strengthening. Construction of multifamily housing, which includes more than five units, was up 25.9% in December from the prior month. Monthly changes in multifamily housing tend to be volatile. Still, building for new multifamily housing was up 30.8% from the same time a year ago.

One bright spot on the report, building permits for all types of residential housing were up 16.7% in December, however, that was attributed to a rush by builders to apply for approval before new building codes came into effect in California, Pennsylvania, and New York in 2011.

Tags: HUD, census bureau, housing starts, single family homes, multi-family homes, housing construction, tight lending standards, building permits, builders