Is Apartment Construction Surge Healing Housing Market?

A surge in apartment construction gave builders more work in November. But 2011 is still shaping up to be one of the worst years in history for home builders. The Commerce Department says builders broke ground on a seasonally-adjusted annual rate of 685,000 homes last month, a 9.3 percent jump from October. That’s the highest level since April 2010.

Still, that’s far below the 1.2 million homes that economists say would be built each year in a healthy housing market. Building permits, a gauge of future construction, rose by 5.7 percent. The increase, to the highest level in three years, was spurred by more apartment permits.

Though new homes represent just 20 percent of the overall home market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Over the past year, apartment permits have surged roughly 63 percent. Single-family permits have increased just 6.6 percent in that time.

Home construction and sales are in the midst of one of its worst years ever. Demand for new homes is weak. Record-low mortgage rates and plunging home prices have done little to help. Overall, home-building dipped in 2009 to just 554,000 homes, the lowest levels in 50 years in 2009.

Last year the figure rose to roughly 587,000 homes. Builders are struggling to compete with deeply discounted foreclosures and short sales. Short sales occur when lenders allow homes to be sold for less than what’s owed on the mortgage. Few homes are selling.

After previous recessions, housing accounted for at least 15 percent of  U.S.economic growth. Since the recession officially ended in June 2009, it has contributed just 4 percent.

Source:  DBR