Home construction falls as market's recovery remains sluggish

Home construction ended the year on a sour note, recording the worst showing in 50 years, yet builders remain upbeat about the slowly improving sector. 

Housing starts fell 4.1 percent in December to a seasonally adjusted rate of 657,000, caused primarily by a 20.4 percent drop in multi-family housing, the Commerce Department reported on Thursday. 

Meanwhile, construction of new single-family homes rose 4.4 percent to a seasonally adjusted annual rate of 470,000 units in December, the third consecutive increase and the fastest pace since April 2010. 

All told, 606,900 housing units were started in 2011, 3.4 percent better than the 586,900 starts in 2010.

Still, single-family home construction wrapped up the worst year on record despite making some steady improvement in the final few months. 

"This report is in keeping with our expectations for slow but steady improvement in the single-family market, where production hit its lowest yearly rate in over 50 years in 2011," said David Crowe, chief economist at the National Association of Home Builders. 

Crowe pointed out that the decline in multi-family starts in December came off a large increase the previous month. 

"Apartment production generally continues to gain strength heading into 2012 after posting a more than 50 percent gain in 2011," he said. 

Looking forward, NAHB is forecasting gains of approximately 17 percent in both single- and multi-family housing production in 2012.

By region, housing starts were up 54.8 percent in the Midwest after a large drop in November, while the Northeast posted a 41.2 percent drop that offset a large increase in November. The South and West also showed drops of 3 percent and 17.6 percent, respectively.

Building permits, a gauge of future activity, was 679,000 — slightly lower than the 680,000 in November. 

Single-family permits increased by 1.8 percent to 444,000 units, the third straight month of increases, while multi-family permits fell 3.7 percent to 235,000 units.

"Today's report adds to the growing evidence that demand for new, single-family homes is finally starting to firm up in an increasing number of markets nationwide," said Bob Nielsen, chairman of the NAHB and a home builder from Reno, Nev. 

"This emerging trend is allowing builders to put more crews back to work, and could be even stronger if not for the overly tight credit conditions that prevail for both builders and buyers, as well as the continuing foreclosure crisis and the challenges of obtaining accurate appraisal values on new homes," said. 

Nielsen urged lawmakers to solve nagging problems hampering the housing sector's recovery.