Home Construction Rebounds In February Although Building Permits Slid Further

Tuesday, March 20th 2007, 8:21 am
By: News On 6

WASHINGTON (AP) _ Construction of new homes rebounded in February after a big decline in the previous month, but building permits slid further, indicating more problems down the road for the troubled housing industry.

The Commerce Department reported that construction of new homes and apartments rose by 9 percent in February to a seasonally adjusted annual rate of 1.525 million units. That represented a better-than-expected rebound after construction activity had plunged by 14.3 percent in January to the slowest pace in more than nine years.

But builders' applications for new permits, considered a more reliable gauge of future activity, continued falling in February, dropping by 2.5 percent to an annual rate of 1.532 million units. That marked the 12th decline in the past 13 months in building permits and underscored the construction industry's steep slump.

The 9 percent rebound in housing in February had been expected given that construction had fallen so much in January, a month when a return to more normal winter weather had pushed construction activity lower after an unusually warm December.

After enjoying five boom years of record sales of new and existing homes, the housing industry has been mired for the past year in a steep slump as demand has fallen sharply and home prices, which had been surging, have stagnated.

The housing slump has already dragged down overall economic growth. Financial markets have been thrown into a frenzy in the past several weeks over worries that rising mortgage defaults could threaten the financial health of lenders, especially those who had a major presence in the subprime market, which offered loans to people with weak credit histories.

Normally, the Federal Reserve could be expected to cushion the credit crunch by cutting interest rates. However, the central bank is widely expected to keep rates unchanged at this week's meeting out of concern that the slower economy has not sufficiently dampened inflation pressures.

By region of the country, the gain in construction last month included an 18 percent jump in activity in the South, the biggest percentage gain in that region in nearly two years. Construction was also up strongly in the West, rising by 26.4 percent, the best showing since January 1997.

Construction fell by 29.7 percent in the Northeast, the biggest one-month plunge in that region since December 1990. Construction also fell in the Midwest, dropping by 14.4 percent after an even bigger 16.4 percent drop in January.

The National Association of Home Builders reported Monday that its survey of builder sentiment fell in early March, reflecting worries about the financing troubles in the subprime mortgage market. The builder confidence index dropped to 36, down from a February reading of 39.

``Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line and some are already seeing effects of the subprime shakeout on current sales activity,'' said David Seiders, chief economist for the home builders.

The concern is that with banks and other lenders tightening up on loan requirements because of rising defaults, it will make it even harder for potential home buyers to qualify for mortgages, reducing the demand for homes even more.

In addition, the higher level of borrowers defaulting on their mortgages means even more supply dumped on the market.