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Home Construction Declines

January 30, 2011

By SARA MURRAY

New-home construction dropped in December to its lowest level in more than a year as the feeble housing sector ended 2010 on a weak note.

Private building of new homes dropped 4.3% in December from a month earlier to a seasonally adjusted annual rate of 529,000—the lowest level of housing starts since October 2009, the Commerce Department said Wednesday. The construction industry continued to stumble last year even as economic growth picked up and private-sector job creation returned. Housing starts ended the year 8.2% below December 2009 and there’s little sign building will pick up early this year.

“From what we’ve heard from builders, they’re not very hopeful for recovery in 2011,” said Mark Vitner, a Wells Fargo Securities economist. “The first half of the year, it looks like housing’s going to be dead in the water.”

A survey of builder sentiment released Tuesday showed they were still pessimistic about the home-building landscape in January.

Last month’s construction weakness was the result of a decline in single-family housing starts, which make up the vast bulk of new residential construction. New single-family home construction dipped 9% to 417,000. It was the lowest level of single-family home construction since May 2009.

Demand for single-family homes has been battered during the recession and subsequent recovery as builders competed with an excess supply of previously owned homes—fueled in part by a flood of foreclosures–and faced difficulties gaining credit for new projects. New single-family home construction ended the year down 14.2% from December 2009.

Prospective buyers have been pinched by tighter lending standards and lingering worries over high unemployment. Hard times have forced some families to double up in housing, which has been a factor in curbing demand for new homes.

The housing industry received a boost early last year from a first-time home buyer tax credit that helped revive sales, but activity faltered once the credit expired.

As fewer Americans opt for home ownership, demand for apartments has been strengthening. Construction of multifamily housing, which includes more than five units, was up 25.9% in December from the prior month. Monthly changes in multifamily housing tend to be volatile. Still, building for new multifamily housing was up 30.8% from the same time a year ago.

On a more upbeat note for housing, building permits for all types of residential housing were up 16.7% in December, though part of the increase could stem from a change in building codes in certain states that went into effect in January, the Commerce Department said.

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