AP News

Ahead of the Bell: US Housing Starts


WASHINGTON (AP) — Builders likely started construction on more homes and apartments in August, further evidence of a sustained recovery in the housing market.

Economists forecast that builders broke ground on a seasonally adjusted rate of 760,000 homes, up from 746,000 in July, according to a survey by FactSet. The Commerce Department will release the report at 8:30 a.m. EDT Wednesday.

In July, builders started work on slightly fewer homes than they had in June. But applications for building permits rose to their highest level since August 2008, a hopeful sign.

The rate of construction and the level of permits still remain only about half the pace considered healthy.

But the steady gains support other signs that suggest the housing recovery could endure.

Sales of both new and previously occupied homes are running ahead of last year. Home prices are increasing more consistently, in part because the supply of homes has shrunk and foreclosures have eased. And mortgage rates remain near record lows, a strong enticement for potential buyers with good credit.

Confidence among builders rose in September to the highest level in more than six years, according to a survey released Tuesday by the National Association of Home Builders/Wells Fargo. And builders are more confident that sales will improve over the next six months, the survey noted.

Even with the gains, the market remains weak. Many would-be buyers are having difficulty qualifying for loans or can't afford the larger down payments being required by banks.

Housing starts have a long way back to full health, and even further to reach the levels seen during the housing boom.

Construction of new homes rose to record levels in the middle of last decade and peaked in January 2006 at a rate of nearly 2.3 million. When the bubble burst in late 2006 and 2007, construction ceased in most parts of the country. Starts plunged to just 478,000 homes in April 2009, the low point during the housing bust.

Building increased in early 2010 as temporary government tax credits for home buyers lifted sales, then fizzled when the support ended. Construction picked up again last fall, coinciding with growing optimism among builders, and it has been rising gradually since.

Though new homes represent less than 20 percent of the housing sales 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 tax revenue, according to the NAHB's data.

The Federal Reserve last week announced new stimulus measures intended to keep mortgage rates low for the next few years.

Fed Chairman Ben Bernanke said the bank would purchase $40 billion of mortgage-backed securities each month until the job market improves "substantially." That could push down longer-term interest rates and spur more borrowing and spending.

The Fed also hopes that lower mortgage rates will accelerate the housing market recovery and boost home prices. That, in turn, could make people feel wealthier and more willing to spend, which would bolster economic growth.


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