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Home construction lower than expected in June

By Dina ElBoghdady
Housing starts dropped more than expected in June for the second consecutive month, reflecting builder unease about the housing market.

Construction of single family homes and apartments fell to a seasonally adjusted annual rate of 549,000, down five percent from May, according to a Commerce Department Report released Tuesday. Analysts polled by Bloomberg had expected a 2.7 percent drop.

Starts fell in every region of the country, driven by a sharp 21.5 percent drop in apartment construction - buildings with five units or more. Single family starts were down a more modest 0.7 percent to a seasonally adjusted annual rate of 454,000.

The only upbeat data was the 2.1 percent rise in housing permits last month to an annual rate of 574,000. Permits, considered a predictor of future construction, had dropped by nearly 6 percent in May.

Builders are shying away from new construction in part because high unemployment, tightening lending standards and the phase-out of a lucrative home buyer tax credit are keeping house hunters on the sidelines.

Builder confidence is in the dumps as builders struggle to entice buyers back while also competing with aggressively priced foreclosures in a market bloated with an excess supply of homes.

Home builder sentiment dropped in July to its lowest level since April 2009, according to an index released earlier this week by the National Association of Home Builders. Home building activity is watched closely because construction adds jobs to the economy. Builder confidence plunged to 14 points from 16, the index reported. Readings below 50 suggest gloomy builder sentiment.

"The market still has an oversupply of homes, and builders do not yet have reason to add to it," economists at Wells Fargo securities recently wrote in a note to clients.

By Washington Post staff  |  July 20, 2010; 9:48 AM ET
Categories:  U.S. Economy  
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