Increase in housing starts could portend improving market

Homebuilding accelerated in September at the fastest pace in 17 months as the sector works to emerge from the doldrums. 

Housing starts in September were at a seasonally adjusted annual rate of 658,000, 15 percent above the revised August estimate of 572,000 and 10.2 percent higher than the September 2010 rate of 597,000, the Commerce Department reported Wednesday. 

Housing starts for single-family homes "was right in line with our forecast for the third quarter and in keeping with what builders have been telling us in recent surveys regarding the emergence of improving conditions in select local housing markets," said David Crowe, chief economist for the National Association of Home Builders. 

Single-family homes represent 70 percent of all homes built. A healthy market usually churns out about 1.2 million starts, economists say. 

Housing starts reached a high of 636,000 in January, dipped to its lowest level of 518,000 in February and have gotten no higher than 615,000, which was hit in June, the report showed. 

Most of the gain can be attributed to apartment construction, a volatile aspect, whereas single-family housing gains were small, increasing at a an annual rate of 425,000, up 1.7 percent from the revised August figure of 418,000. 

The September rate for units in buildings with five units or more was 227,000, a 53.4 percent increase over the August figures.

"The big gain in multifamily housing production for September was in the wake of a below-trend number in August and in keeping with characteristic volatility in that sector," Crowe said. "However, there's no doubt that demand for apartments is rising as restrictive mortgage lending policies and concerns about future employment push consumers to pursue rental options." 

Meanwhile, building permits, which provide insight into future construction, dropped 5 percent to a seasonally adjusted annual rate of 594,000.

It's still 5.7 percent above the September 2010 estimate of 562,000.

Builders are struggling to gain footing in a market bogged down by lower-priced foreclosures, while building materials' costs are rising.

Although new home sales constitute only about 20 percent of the market, they make a much larger economic contribution — leading to an average of three new jobs and about $90,000 in taxes per year, according to the NAHB.