New Housing Construction is Shaking off its Slumber
A better-than-expected rebound in construction last month is the latest sign that the prolonged housing slump may be coming to an end.

Construction of new houses and apartments jumped 17.2 percent in May to a seasonally adjusted annual rate of 532,000 units, the Commerce Department reported Tuesday. The increase exceeded projections of many economists.

In another encouraging sign, applications for building permits, seen as an indicator of future activity, rose 4 percent in May to an annual rate of 518,000 units.

The current recession was triggered by a collapse in the housing market that led to soaring loan losses and a banking system crisis. A healthy home market is needed to support a broad economic recovery.

In the St. Louis region, local experts say they are beginning to see more activity. Numbers for May were not available Tuesday.

Joe Zanola, who heads the Rock Hill-based market research group Zanola Co., said building permits have climbed each of the last four months.

He also has seen a noticeable interest from first-time buyers, spurred in part by the $8,000 tax credit. That's helping builders sell off their inventory and reduce supply.

Still, through April, permits for 2009 were well below prior years — half of last year's level and down more than two-thirds from 2007. Zanola said he doesn't expect to see year-over-year growth until next year.

House construction in May was led by a 28.6 percent surge in the West. Construction rose 6.8 percent in the South and 11.1 percent in the Midwest. The Northeast had the smallest gain: 2 percent.

Many economists say construction likely will stop falling in the current quarter, but a sustained rebound isn't expected to take hold until next spring. That's partly due to the glut of unsold houses and a record wave of mortgage foreclosures dumping more houses on the market.

With foreclosures and other distressed properties for sale at deep discounts, builders often can't compete. Rather than launching new developments, they are waiting for signs of a broader recovery.

Patrick Sullivan, executive vice president of the Home Builders Association of Eastern Missouri, said he's starting to hear of a bit more interest from potential buyers, but just a bit.

"It's not a faucet turned wide open by any means," he said. "But it's a trickle, and stronger than anything we've seen in this early spring or winter."

Sullivan said it will take a while to know if that trickle will be sustained. There is still a glut of housing on the market, and a lot of uncertainty in the economy.

"What's telling is looking at maybe a six-month span," he said. "That's when you start to see a trend."

Source:, June 17, 2009