Home starts up, permits fall as tax credits expire

Housing starts rose 5.8 percent to an 18-month high in April, but a corresponding 11.5 percent drop in building permits - especially for single-family homes - indicates to some industry observers that builders remain cautious about the near future.

The Commerce Department reported Tuesday that housing starts climbed in April to a seasonally adjusted annual rate of 672,000 units, up from 635,000 in March and 40.9 percent higher than in April 2009.

It was the highest reading since October 2008.

Single-family starts rose 10.2 percent from March and were 43 percent higher than in April 2009, the department said. Single-family permits fell 10.7 percent from March's level, however.

Buyers eager for the federal tax credits contributed to increases in housing starts during March and April, industry observers said. To obtain those credits, qualified buyers needed signed agreements of sale by April 30, with settlement to take place no later than June 30.

Many builders began adding to their existing new-home inventory in late autumn and early winter, hoping to get a jump on an anticipated rush for the maximum credits of $8,000 for qualified first-time buyers and $6,500 for current owners who have not bought a primary residence in five years.

National figures for April sales of previously owned homes won't be available until next week, so the credits' impact for the month cannot be gauged yet. But sales in the eight-county Philadelphia region, released Tuesday by Prudential Fox & Roach's HomExpert Market Report, show a 32.5 percent increase over April 2009 and a median-price gain of 2.9 percent - $208,000 vs. $202,200.

"Undoubtedly, the end of the home buyers' incentive created some of the extra activity we saw in both March and April, and there is likely to be a reduction in construction in the next few months," said economist Joel L. Naroff, of Naroff Economic Advisers in Holland, Bucks County. "That simply points to developers being quite cautious."

Patrick Newport of IHS Global Insight in Lexington, Mass., called the Commerce Department's report disappointing because of the drop in single-family permits - "the report's key item."

"The drop is probably payback from the tax credit, since permits taken out in March and earlier have a good chance of being completed by June 30," Newport said. Since only 25 percent of houses built in 2009 were completed in three months, he said, April permits "stand less of a chance."

At the same time, he noted that the increase in single-family starts was comforting.

"The economy is still shedding residential construction jobs," Newport said, "but the pickup in single-family starts indicates that this sector will start adding jobs soon."

Though cautious, builders are growing more confident about the economy's recovery. The National Association of Home Builders/Wells Fargo Builders' Confidence Index for May rose to its highest level in more than 21/2 years.

"When we look back at things this fall," Naroff said, "we will see a slow but steady improvement in home construction."