U.S. home construction posted a bigger-than-expected gain in April thanks to the extension of a tax credit, but the plunge in permits suggests the housing sector will remain a weak spot in the economy.
Housing starts rose 5.8% to a seasonally adjusted 672,000 annual rate compared to the prior month, the Commerce Department said Tuesday.
Economists surveyed by Dow Jones Newswires expected starts to rise 3.8%. March starts, originally seen up 1.6%, were revised to an increase of 5.0%.
However, building permits decreased 11.5% to a 606,000 annual rate, suggesting a slowdown in construction over the next several months as demand is expected to wane. Economists had expected permits to drop by only 0.4%.
The housing sector was hit hard by the recession and still has a long way to go to recover. Low house prices and mortgage rates, coupled with the government's tax benefit, are helping the industry drift higher from very low levels. But another setback may occur once the tax incentive--which was extended to include deals inked by April 30 and closed by June 30--expires.
"Normally, the U.S. economy needs to construct over 1.5 million housing units a year to meet underlying demand. This will not happen until 2012," said Patrick Newport, U.S. economist at IHS Global Insight, in a research note.
Builders are cautious because of a surplus of unsold homes, including a so-called "shadow" inventory made up of property withheld from the market because of low prices.
Reported by Wall Street Journal (05/18/2010)
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