March housing starts gain on multifamily building

WASHINGTON — Housing construction posted a better-than-expected performance in March, rising to the highest level in 16 months on the strength of multi-family homes.

The Commerce Department report Friday showed that construction of single-family homes, the most important segment of the market, fell. It dropped 0.9 percent to an annual rate of 531,000 units, after a strong 5.7 percent gain in February.

But permits for single-family construction, a barometer for future activity, were up. That raised some hopes that the recovery of the housing market will stay on track and help sustain the broader economic rebound.

Overall, construction rose 1.6 percent to a seasonally adjusted annual rate of 626,000. That was higher than the 610,000 level that economists expected. In addition, the government revised February's numbers to show a 1.1 percent gain rather than the initially reported drop of 5.9 percent.

Applications for building permits recorded a better-than-expected increase in March, rising 7.5 percent to an annual rate of 685,000.

Analysts are looking for any rebound in housing to be modest at best given the severe problems facing the industry. These include record home foreclosures and high unemployment, which robs potential buyers of the income they need to support a home purchase.

The weakness in single-family construction was offset by an 18.8 percent surge in the smaller multifamily sector, which rose to a seasonally adjusted annual rate of 95,000 units. Analysts do not expect this strength to continue given a multitude of problems facing commercial real estate at the moment. That includes high apartment vacancy rates and rising foreclosures of commercial properties.

Paul Ashworth, an economist at Capital Economics, noted that even with the March gain, the level of housing construction is still slightly more than one-fourth of where it was during the boom years in the middle of the decade. He said this burst of activity could well fade after home buyer tax credits expire at the end of this month.

By section of the country, all the strength in March came in the South. Construction activity there jumped 18.2 percent, the best advance in 10 months. Building activity plunged 28.4 percent in the Midwest and was down 8.3 percent in the Northeast and 2.1 percent in the West.

The National Association of Home Builders said Thursday its housing market index, which tracks industry confidence, jumped four points to a reading of 19 in April, the highest level since September.