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The Associated Press May 17, 2011, 7:20AM ET

Ahead of the Bell: Housing starts

Builders likely broke ground on more homes in April, giving the battered housing market a small boost amid the worst construction downturn in a generation.

Economists forecast that builders began work on a seasonally adjusted 570,000 homes per year, according to a FactSet survey. That would be a 4 percent increase from the previous month's pace. The Commerce Department releases the report at 8:30 a.m. Tuesday.

The building pace is still far below the 1.2 million homes a year that economists consider healthy.

If Tuesday's forecast holds true, builders would be nearly 20 percent ahead of the 477,000-unit pace from April 2009 -- the lowest point on records dating back to 1959. But they would be down nearly 75 percent from their peak of nearly 2.3 million homes in January 2006, at the height of the housing boom.

Builders are struggling to compete because millions of foreclosures are forcing down prices for previously occupied homes. The median price of a new home was about 34 percent higher in March than the median price for a re-sale. That's more than twice the markup in healthy housing markets.

In some cities, prices are half of what they were before the housing market collapsed in 2006 and 2007. Tighter lending standards have made home loans tougher to come by. Many potential buyers who could qualify for loans are worried that prices will fall further. Others are hesitant to put their own homes on the market when prices are dropping.

The National Association of Home Builders said Monday that its survey of homebuilder sentiment was unchanged at 16. That's the same level it has been for six of the past seven months. Any reading below 50 indicates negative sentiment about the market. The index hasn't been above that level since April 2006.

And when asked about where they see sales of single-family home heading over the next six months, the builders surveyed offered their most pessimistic outlook since September.

The trade group cited a handful of factors hurting the housing market. Most were familiar complaints, such as high unemployment and the wave of foreclosures forcing down home prices. But many also said higher gas prices were contributing to weaker home sales.

The weak housing market is weighing on the overall economic recovery. Each new home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the builders' group. In past modern-day recessions, housing accounted for 15 to 20 percent of overall economic growth. In the first post-recession year, between 2009 and 2010, housing contributed just 4 percent to the economy.

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