Home Building Figures Come in Weaker Than Expected

In the face of growing optimism about a potential real estate recovery, a report on new home construction came in weaker than expected for the second straight month. The Commerce Department on Tuesday reported that September housing starts inched up 0.5 percent from the previous month but remained more than 28 percent below year-earlier levels. The results were below the 2 percent gain that economists had projected. Permits for new home construction, meanwhile, slipped more than 1 percent from August and were about 29 percent below the level of September 2008. "After a steady upward march, the housing market appears to be stopping to catch its breath," Mike Larson of Weiss Research said in a report.

Here are five things you need to know about the September new home construction report.

[See Housing Starts Reach 9-Month High: 4 Things to Know.]

1. Multi family drop: The disappointing results were linked to weakness in the multifamily sector, which can consist of townhouse, condominium, or apartment projects. After surging in August, multifamily starts dropped more than 15 percent in September. "At an annual rate of 89,000, this is within . . . whiskers of the all-time low set in July," economists at Goldman Sachs said in a report. Rising rental vacancy rates, which recently hit their highest levels since 1986, are sapping enthusiasm for multifamily projects, the economists said.

[See Apartment Vacancy Rate Set to Break Record.]

2. Single-family up: Meanwhile, single-family starts increased nearly 4 percent from August, recovering most of the ground they gave up in the previous month. However, Ian Shepherdson, chief U.S. economist at High Frequency Economics, isn't expecting a sustained near-term bounce. "Single-family starts appear to be [leveling] off after a run of big gains stretching back to April. The rebound following the post-Lehman panic seems to be over," he said in a report. "Permits were weaker than starts, suggesting the latter will dip in October. We remain optimistic for 2010, but the next couple of months will be tricky."

3. Builder confidence slides: The figures come one day after the National Association of Home Builders/Wells Fargo Housing Market Index showed that home builders turned slightly less optimistic in October. One part of the index, which measures builder's expectations for sales in the coming six months, dropped 2 points, to 27.

4. First-time home buyer tax credit: The looming expiration of the popular first-time home buyer tax credit could be one factor behind the depressed confidence. The NAHB has been lobbying Congress to extend the tax perk, which is set to expire at the end of November. Not surprisingly, the trade group used Tuesday's report on home construction to press its case. "The fact that builders are pulling fewer permits right now is an indication of the increasing uncertainty about where this market is headed," David Crowe, the NAHB's chief economist, said in a statement. "Clearly, the positive momentum we have seen in the housing market has begun to stall, and congressional action to expand and extend the tax credit may be the only way to keep us from moving back down the hill."

[Will the $8,000 First-Time Home Buyer Tax Credit Be Extended?]

5. Still-uncertain economy: The still-uncertain economy is also limiting new home demand. In its 2010 economic forecast, the Mortgage Bankers Association projected that the national unemployment rate would hit 10.2 percent in the first half of next year. With so many Americans either out of work or worried about losing their jobs, getting would-be buyers off the sidelines is going to remain difficult.