Housing construction up, but picture is mixed

WASHINGTON — Housing construction rose in August, but the results were mixed, with the large single-family sector falling for the first time in six months.

The August performance added to signs that the housing industry has begun to recover from its worst downturn in decades. Still, economists cautioned that the rebound likely will be slow and tentative, given the glut of unsold homes and record levels of home foreclosures.

Last month's gains came from the construction of multifamily homes and apartments, which rose 1.5 percent to an annual rate of 598,000 units, the highest level since November, the Commerce Department said Thursday. That was slightly lower than the 600,000-unit pace economists had expected — and it's more than 70 percent below the peak hit in 2006.

Applications for building permits, a gauge of future activity, rose a 2.7 percent in August to an annual rate of 579,000 units, slightly below the 580,000 level that had been forecast. Permits for single-family homes dipped 0.2 percent but rose for multifamily units by 15.8 percent.

The 1.5 percent rise in housing starts followed a small 0.2 percent dip in July. The August strength reflected a 25.3 percent surge in construction of multifamily units, a volatile sector that had fallen 15.2 percent in July.

The larger single-family sector dipped 3 percent last month to an annual rate of 479,000 units, the first setback following five straight monthly gains.

Paul Dales, U.S. economist at Capital Economics, noted that housing starts remain 74 percent below their 2006 peak and predicted the housing recovery would be a very "long-winded process."

Other economists said the overall gain was still an encouraging sign that the worst is over for housing.

"This sector is likely to start adding to growth rather than holding back the economy," said Joel Naroff, chief economist at Naroff Economic Advisors.

Regionally, construction rose 23.8 percent in the Northeast and 0.9 percent in the Midwest. Activity was flat in the West and fell 2.4 percent in the South.

Builders cut sharply back on construction after the housing bubble burst. The weakness in housing spread to the financial sector as defaults on home mortgages soared. This all contributed to pushing the country into the worst recession in seven decades. Most economists say the overall recession has likely ended.

Builders have been ramping up because buyers want to take advantage of a new federal tax credit for first-time homebuyers. It covers 10 percent of a home price up to $8,000, and is set to expire at the end of November.