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May 17, 2011 at 01:08 PM
WASHINGTON (AP) — For homebuilders, it hardly feels like an economic recovery. Nearly two years after the recession ended, the pace of construction is inching along at less than half the level considered healthy. Single-family home building, the bulk of the market, has dropped 11% in that time.
Builders are struggling to compete with waves of foreclosures that have forced down prices for previously occupied homes. The weakness is weighing on the economy: Though new homes represent a small portion of overall sales, they have an outsized effect on jobs.
The Commerce Department said Tuesday that new-home construction plummeted in April to a seasonally adjusted rate of 523,000 homes per year. A major drop in volatile apartment building pulled down the monthly figures. And strong tornadoes and flooding also disrupted construction projects throughout the South.
Still, through the first four months of this year, the pace of new-home construction is barely ahead of 2009's — the worst year on records dating back a half-century.
"There are very few signs of recovery in residential construction," said Celia Chen, senior director at Moody's Analytics. "Absent evidence of stronger demand for housing, homebuilders will remain reticent to put up new homes."
The disappointing construction data contributed to a sell-off on Wall Street. The Dow Jones industrial average fell more than 110 points in mid-day trading.
Stocks also fell after Hewlett Packard lowered its earnings outlook for the rest of the year, and the Federal Reserve said temporary parts shortages out of Japan led to the first decline in factory output in 10 months.
The April drop in new-home construction was largely because apartment and condominium building plunged more than 28%. Single-family home construction, which makes up roughly 80% of the market, fell about 5%.
Building permits, a gauge of future construction, fell 4%.
"The underlying trends, as far as we can tell, are about flat, at a very low level," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
High unemployment and tighter lending standards have greatly reduced the number of potential buyers who could qualify for a mortgage. And those who are eligible have more incentive to buy a previously occupied home.
