Housing construction ticks up, but the sector is still struggling

By Vicki Needham - 06/16/11 03:48 PM ET

An increase in housing construction in May provided another small economic boost on Thursday.

Housing starts were up last month to a seasonally adjusted annual rate of 560,000 units per year, 3.5 percent above the revised April estimate of 541,000, but still 3.4 percent below the May 2010 level of 580,000, the Commerce Department reported.

A separate report on Wednesday showed homebuilder confidence continuing to slump, dropping to 13 from 16, the lowest level in nine months as sales remained sluggish.

The markets showed gains throughout the morning on the modest improvements in home building and a drop in initial unemployment claims, down 16,000 for the first full week of June.

During the past two years, home builders have endured their worst performance on record in about 50 years.

Construction is still well below the 1.2 million homes per year that must be built to sustain a healthy housing market, economists estimate.

A separate report released Thursday show foreclosure filings — default notices, scheduled auctions and bank repossessions — occurred on 214,927 U.S. properties in May, a 2 percent decrease from April and a 33 percent decrease from May 2010, according to a report Thursday released by RealtyTrac, a group that follows housing market trends.

The report shows that 1 in every 605 housing units received a foreclosure filing during the month of May.

That's not necessarily any indication that the housing market is improving and foreclosures are slowing.

Federal- and state-level investigations into banks' foreclosure practices have slowed the process and created a backlog that could likely force prices further downward when they hit the market.

“Foreclosure processing delays continue to mask the true face of the foreclosure situation,” James Saccacio, RealtyTrac’s chief executive officer, said in the statement. “Even at a significantly lower level than a year ago, the new supply of REOs exceeds the amount being sold each month.”

An REO is a property owned by a creditor that fails to sell in a foreclosure auction.

An overall recovery in the housing market is a ways off -- experts estimate at least two years -- as the sector sheds foreclosures, prices adjust accordingly and banks continue clearing bad loans off their books.

Single-family housing starts, which account for about 80 percent of all residential construction, hit a rate of 419,000 in May, 3.7 percent above the revised April figure of 404,000. The May rate for units in buildings with five units or more was 134,000.

Each home built generates, on average, three jobs and $90,000 in taxes, according to the National Association of Home Builders.

Housing sales are being held back by persistently high unemployment -- 9.1 percent in May with slowly improving numbers in June -- and falling home values, leaving about 28 percent of homeowners underwater on their loans, according to a report by Zillow.

Home prices dropped 3.6 percent in the first quarter to the lowest level since 2003, according to a recent S&P/Case-Shiller index of values in 20 U.S. cities.

In Thursday's report, building permits, a gauge of future construction, were up last month to the highest level since December with apartment and condominium construction providing a boost.

Following the housing market collapse, renting has gained traction among broader demographic, including those who lost their homes due to foreclosure.