Home construction increases, but it’s still weak

Associated Press

WASHINGTON — The homebuilding industry is years away from recovering from the excesses of the housing boom.

Even with a modest rise in construction last month, the pace of building would need to at least double to signal a healthy market and contribute in a meaningful way to job growth, according to most economists. They don’t see that happening until the middle of the decade.

Builders are competing with millions of foreclosures and other distressed properties that show no signs of abating. They are unlikely to ramp up construction until those are cleared away and demand for new homes picks up.

Home construction did rise 10.5 percent in August, to a seasonally adjusted annual rate of 598,000, the Commerce Department said Tuesday. The results, however, were boosted by a 32 percent jump in apartment and condominium construction, a volatile part of the market.

Construction of single-family homes, which represented about 73 percent of the market in August, grew only about 4 percent from a month earlier. While overall housing starts are up 25 percent from their bottom in April 2009, they are still 74 percent below their peak in January 2006.

“Homebuilding activity remains at an astoundingly weak level,” said Paul Dales, U.S. economist with Capital Economics.

Most economists agree that construction has to be at least double current levels for the market to be considered healthy — between 1.2 million and 1.5 million each year. Dales doesn’t see that happening for at least three to four years.

The industry is suffering the repercussions of a massive building boom that saw 2 million homes per year constructed from 2004 through 2006. Many of those homes were sold to speculators. They then resold the homes, often to borrowers who took out risky loans and then defaulted.

Those unsustainable boom times aren’t coming back, economists say.

“We’re not going to get back to that kind of unsupportable level of demand,” said Brad Hunter, chief economist with Metrostudy, a real estate research and consulting firm. He forecasts the industry will break ground on 670,000 homes this year.

He doesn’t expect the industry to hit the 1 million per year rate until 2012, and that’s only if the economy does not slide back into a recession.