Apartment building permits, a gauge of future construction, rose to highest level in 3 years

U.S. builders started slightly fewer homes in October but submitted plans for a wave of apartments, a mixed sign for the struggling housing market.

Builders broke ground on a seasonally adjusted annual rate of 628,000 homes last month, the Commerce Department said Thursday. That’s roughly half the 1.2 million that economists equate with a healthy housing market.

But building permits, a gauge of future construction, rose nearly 11 percent. The increase was spurred by a 30 percent increase in apartment permits, which reached its highest level in three years.

Over the past year, apartment permits have surged roughly 63 percent. Single-family permits have increased just 6.6 percent in that span.

Renting has become a preferred option for many Americans who lost their jobs during the recession and were forced to leave their homes. The surge in apartments may help boost economic growth, but it has not been enough to offset the steep declines in single-family homebuilding.

“Given continued constraints on homeownership and rising rents across the country, the trend towards multi-unit construction is one that we expect to continue going forward,” said James Marple, senior economist at TD Economics.

New-home construction and sales are in the midst of one of its worst years in history. Demand for new homes is weak and historically-low mortgage rates and plunging home prices have done little to help.

Jennifer Lee, senior economist at BMO Capital Markets, said the housing industry continues to be the U.S. economy’s “weak link.” But the October report wasn’t as bad as many analysts had expected.

Single-family homes, which make up about 70 percent of residential home construction, rose nearly 4 percent last month. Apartments, a more volatile category, fell more than 13 percent.

Overall, homebuilding dipped in 2009 to just 554,000 homes, the lowest levels in 50 years in 2009. Last year the figure rose to roughly 587,000 homes and this year may not be much better.

Cash-strapped builders are struggling to compete with deeply discounted foreclosures and short sales, when lenders allow borrowers to sell homes for less than what is owed on their mortgages. And few homes are selling.

Though new homes represent just 20 percent of the overall home market, they have an outsized impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

After previous recessions, housing accounted for at least 15 percent of economic growth in the United States. Since the recession officially ended in June 2009, it has contributed just 4 percent.

Sales of new homes rose in September after four straight monthly declines, largely because builders cut their prices in the face of weak demand. Sales hit a six-month low in August and this year is shaping up to be the worst since the government began keeping records a half-century ago.

Another reason sales have fallen is that previously occupied homes are a better deal than new homes. The median price of a new home is about 30 percent higher than the median price for a re-sale. That’s almost twice the markup in a healthy housing market.

The homebuilders’ trade group said Wednesday that its survey of industry sentiment rose this month to 20, the highest level since May 2010. Still, any reading below 50 indicates negative sentiment about the housing market. The index hasn’t reached 50 since April 2006, the peak of the housing boom.

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