Housing construction up, but picture is mixed

Housing construction rose in August, but the results were mixed, with the large single-family sector falling for the first time in six months.

The August performance added to signs that the housing industry has begun to recover from its worst downturn in decades. Still, economists cautioned that the rebound likely will be slow and tentative, given the glut of unsold homes and record levels of home foreclosures.

Construction of new homes and apartments rose 1.5 percent to an annual rate of 598,000 units last month, the Commerce Department said Thursday, but the strengh all came from the multifamily sector. The increase was slightly lower than the 600,000-unit pace that economists had forecast - and it's more than 70 percent below the peak hit in 2006.

Applications for building permits, a gauge of future activity, rose a 2.7 percent in August to an annual rate of 579,000 units, slightly below the 580,000 level that had been forecast. Permits for single-family homes dipped 0.2 percent but rose for multifamily units by 15.8 percent.

The 1.5 percent rise in housing starts followed a small 0.2 percent dip in July. The August strength reflected a 25.3 percent surge in construction of multifamily units, a volatile sector that had fallen 15.2 percent in July.

The larger single-family sector dipped 3 percent last month to an annual rate of 479,000 units, the first setback following five straight monthly gains.

Paul Dales, U.S. economist at Capital Economics, noted that housing starts remain 74 percent below their 2006 peak and predicted the housing recovery would be a very "long-winded process."

Other economists said the overall gain was still an encouraging sign that the worst is over for housing.

"This sector is likely to start adding to growth rather than holding back the economy," said Joel Naroff, chief economist at Naroff Economic Advisors.

Regionally, construction rose 23.8 percent in the Northeast and 0.9 percent in the Midwest. Activity was flat in the West and fell 2.4 percent in the South.

Builders cut sharply back on construction after the housing bubble burst. The weakness in housing spread to the financial sector as defaults on home mortgages soared. This all contributed to pushing the country into the worst recession in seven decades. Most economists say the overall recession has likely ended.

Builders have been ramping up because buyers want to take advantage of a new federal tax credit for first-time homebuyers. It covers 10 percent of a home price up to $8,000, and is set to expire at the end of November.

The National Association of Home Builders said this week that its housing market index rose in September, reflecting growing optimism in the industry about rising home sales. The trade association said its index rose one point to 19, the highest reading since April 2008.

Homebuilders' stocks jumped following the release of that report and mostly moved higher early Thursday. Shares of Beazer Homes USA Inc., and Hovnanian Enterprises Inc., were each up more than 6 percent in morning trading. Financial results for homebuilders also were better than expected in the latest quarter.

The Dow Jones U.S. Home Construction Total Stock Market Index has surged since bottoming in November but remains only at about a third of the level achieved at its recent peak in 2005.

(This version CORRECTS that 1.5 percent increase is for overall housing, not multifamily sector)