Builders broke ground on more new homes last month, giving the weak U.S. housing market a slight boost at the start of the spring buying season.
Home construction rose 7.2 percent in March from February to a seasonally adjusted 549,000 units. Building permits, an indicator of future construction, rose 11.2 percent after hitting a five-decade low in February.
Still, the building pace is far below the 1.2 million units a year that economists consider healthy. And March’s improvement came after construction fell in February to its second-lowest level on records dating back more than a half-century.
Millions of foreclosures have forced home prices down. In some cities, prices are half of what they were before the housing market collapsed in 2006 and 2007. And more foreclosures are expected this year. Tight credit has made mortgage loans tough to get. Many would-be buyers who could qualify for loans are reluctant to shop, fearing that prices will fall even further.
The increase in home construction activity was felt in most regions of the country. It rose 32.3 percent in the Midwest, 27.6 percent in the West and 5.4 percent in the Northeast. Construction fell 3.3 percent in the South.
New homes can spur job growth. Each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
Housing starts fell 22.5% in February, well below most analysts’ estimates and to the lowest rate in almost two years, according to Commerce Department data.
In a joint release, the Census Bureau and Department of Housing and Urban Development said starts fell to a seasonally adjusted rate of 479,000 units, down from a revised 618,000 for January and 20.8% lower than a year earlier.
The monthly drop was the largest since March 1984. February’s decrease comes on the heels of a 14.6% increase in starts for the first month of 2011.
Analysts polled by Econoday were expecting housing starts to come in at 560,000 with a range of estimates between 540,000 and 590,000. Economists surveyed by MarketWatch projected starts to come in at 570,000 for February. Single-family starts fell 11.8% in February to 375,000 from a revised 425,000 for January.
Permits for new homes in February declined 8.2% to 517,000 from a revised 563,000 for January and remain 20.5% below the year earlier estimate of 650,000.
This low level of starts is actually good news for housing, and we expect to see starts stay low until more of the excess inventory of existing homes is absorbed.
Housing will see gradual improvements this year, establishing momentum for stronger gains in 2012, said economists at the National Association of Home Builders International Builders’ Show recently.
“This year’s spring selling season will be better than last year’s,” said NAHB Chief Economist David Crowe, with job growth providing a stronger stimulus in the housing market than last year’s federal homebuyer tax credit.
Crowe forecasted 575,000 single-family home starts in 2011, a 21% climb over an estimated 475,000 units started in 2010, which in turn showed a 7% gain from the 442,000 homes started in 2009.
New-home sales, Crowe projected, “will struggle” but begin following employment gains, reaching 405,000 for the year, up from an estimate of about 320,000 for 2010.
Potential buyers who have resources to buy but want to buy at the bottom are likely to start coming into the market in the springtime,” he said.
Fixed-rate mortgages will move up from their current 4.75% to the 5.75% range by the end of this year, he forecasted. This will push total single-family mortgage originations down about 30% below the 2010 level as refinancings fall sharply with rising mortgage rates.