A Poor Year for Home Building Ends on Hopeful Note

WASHINGTON (AP) - Builders ended 2011 with a third straight year of dismal home construction and the worst on record for single-family home building. But improvement at the end of the year lifted hopes for an eventual recovery.

In December, builders broke ground on a seasonally adjusted annual rate of 657,000 homes, the Commerce Department said Thursday. A third straight increase in single-family home building was offset by a drop in volatile apartment construction.

The housing market still appears years away from full health.

For the entire year, builders began work on 606,900 homes. That's slightly better than in the previous two years. But it's only about half the number that economists equate with healthy markets.

Construction began on 428,600 single-family homes in 2011. It was the fewest on records dating back a half-century. In a good economy, builders tend to break ground on roughly twice as many. Single-family homes are key to a housing rebound because they account for roughly 70 percent of the market.

Still, analysts said the final months point to improvement.

"We expect further sustained gains in starts and permits over the next few months; a real recovery is getting started," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Homebuilders have grown slightly less pessimistic because more people are saying they might be open to buying a home this year. The National Association of Home Builders/Wells Fargo builder sentiment index rose in January to its highest level since June 2007.

The number of actual purchases remains weak. Among new homes, sales last year are likely to turn out to be the worst on records dating back half a century. But the rising interest from would-be buyers, along with record-low mortgage rates, is lifting optimism for stronger sales ahead

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.)

Though new homes represent just 20 percent of the overall home market, they have a big 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.

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.

Another reason new-home sales have fallen is that previously occupied homes have become a better deal. The median price of a new home is about 30 percent higher than the median price for a re-sale. That's nearly twice the markup typical in a healthy housing market.

"The report shows the housing industry is still in a holding pattern," said Mitchell Hochberg, principal of Madden Real Estate Ventures in New York. He said fewer foreclosures and a drop in unemployment would help spur a turnaround.