Housing Starts Drop Amid Commercial Foreclosed Homes

Housing starts dropped in July, as commercial foreclosed homes slowed down the pace of construction of multifamily properties like apartment buildings and townhouses, according to a report from the U.S. Commerce Department.

However, the pace of single-family construction increased, marking the highest level reached by the home building industry since October last year.

Housing starts dropped by 1 percent to an adjusted yearly rate of 581,000 units, marking the first decrease in 3 months and a decrease from the 587,000 adjusted annual rate in June.

Meanwhile, starts for single family homes, which comprise 75 percent of the home building industry, increased to a 490,000 adjusted annual rate, an increase of 1.7 percent.

Analysts said that single-family house construction has been increasing since March as demand for new homes rose. Federal and state government initiatives to encourage home buying, such as the federal tax credit incentive, have been effective in pushing up new home sales.

However, they explained that tight credit, job losses and continued commercial and residential foreclosures will slow down the pace of recovery.

Mark Vitner, an economist for North Carolina-based Wells Fargo Securities LLC, said that the housing market is nearing its bottom, but unemployment is tempering recovery. He added that the federal tax credit has been effective in shoring up single-family construction and that new home construction will contribute to the gross domestic product in the second half of 2009.

Based on the forecasts by 70 economists interviewed by Bloomberg News, housing starts were expected to increase in July to 599,000 units based on an adjusted annual rate. The forecasts made by the economists ranged from 542,000 units to 646,000 units. Actual housing starts however reached only 581,000 units on an adjusted annual rate.

Building permits also decreased in July, falling by 1.8 percent to an adjusted annual rate of 560,000, compared to the previous rate of 570,000 units.

Construction of multifamily properties fell to 91,000 units on an adjusted annual rate, a drop of 13 percent. Analysts explained that multifamily housing projects have been held back by lack of construction lending.

The biggest drop in housing starts occurred in the Northeast, with a decline rate of 16 percent. The West had a drop rate of 1.6 percent and the South had a decline rate of 1.4 percent. In contrast, housing starts increased by 13 percent in the Midwest.

Despite the decrease in housing starts nationwide, Toll Brothers, the biggest luxury homebuilding in the country, reported third quarter revenues that surpassed estimates by analysts.

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