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New-home construction climbs

Building in February rises 9%. But a drop in permit filings suggests that fallout from the sector's slump isn't over.

March 21, 2007|From the Associated Press

WASHINGTON — New-home construction rebounded in February after a steep January slide. But analysts pointed to a further decline in building permits as a worrisome signal of future problems for the troubled housing industry.

Construction of new homes and apartments rose 9% in February to a seasonally adjusted annual rate of 1.53 million units, the Commerce Department reported Tuesday. Construction had fallen by 14.3% in January to the slowest pace in more than nine years.

Even with the better-than-expected rebound, activity remained 28.5% below the level of a year earlier, underscoring housing's steep downturn.

Builders' applications for new permits, considered a more reliable gauge of future activity, continued falling in February, dropping by 2.5% to an annual rate of 1.53 million units. That marked the 12th decline in the last 13 months in building permits.

The continued drop in permits was seen as a troubling sign that the fallout from the housing correction, which has begun to affect economic growth, is not over.

Patrick Newport, an economist at Global Insight, forecast that housing construction would decline by 19% this year, shaving overall economic growth by nearly 1 percentage point for 2007.

Last year, housing construction fell by 12.9%, reflecting a sharp slowdown in sales of all homes as mortgage rates rose and demand slackened after five boom years.

Weakness in the sub-prime lending market, which provides loans to borrowers with poor credit, contributed to the Feb. 27 stock market plunge. The Dow Jones industrial average fell by 416 points, the biggest point drop in more than five years.

David Seiders, chief economist for the National Assn. of Home Builders, said the organization's survey of builder sentiment tumbled in early March, with many builders expressing concern that tighter loan requirements, prompted by rising mortgage delinquencies, would hurt sales.

"About 30% of the builders responding to the survey said their sales have been adversely affected since the beginning of the year by the tightening of loan standards," Seiders said.

Normally, the Federal Reserve could be expected to alleviate a credit crunch by cutting interest rates.

The central bank, however, is expected to keep rates unchanged at the end of a two-day meeting today out of concern that the slower economy has not sufficiently damped inflationary pressures. Two closely watched gauges of inflation at the wholesale and retail levels showed big gains in February.

By region of the country, the West led the gains in construction, posting a 26.4% jump, which was the area's best showing since January 1997. Construction activity was also up in the South, increasing by 18%, the biggest percentage gain in that region in nearly two years.

Construction fell by 29.7% in the Northeast, the biggest one-month plunge there since December 1990, while construction fell in the Midwest by 14.4% after a 16.4% decline in January.

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