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AP
Friday May 16, 11:24 am ET
By Martin Crutsinger, AP Economics Writer

Housing posts surprising rebound in April on apartment construction, outlook still shaky

WASHINGTON (AP) -- Construction of new homes posted the biggest increase in more than two years in April. While it was a rare spot of good news for the housing market, analysts said it's far too soon to declare an end to the prolonged slump.

The Commerce Department reported Friday that housing construction rose by 8.2 percent in April to a seasonally adjusted annual rate of 1.03 million units. Building of single-family homes continued to weaken, however. The growth came from a big jump in apartment construction.

Analysts predicted the surprising rebound in April would be temporary given the headwinds builders are still confronting, from slumping sales to soaring home foreclosures.

"It is definitely too early to uncork the champagne on the long and winding road to more-healthy housing-market conditions," said Brian Bethune, an economist at Global Insight. He said he did not expect housing activity to stabilize until the end of this year.

The prolonged slump in housing has been a major drag on the overall economy, raising worries that the country is in danger of falling into a recession. A second report Friday showed that consumer confidence as measured by the University of Michigan/Reuters survey fell to a 28-year low of 59.5 in early May, down from 62.6 in April. The drop was blamed in part on rising concerns about higher gas and food prices.

The strength in housing construction in April came entirely from a huge increase in apartment construction, which can be extremely volatile from month to month. Building of apartments, defined as two or more units, jumped by 36 percent to a seasonally adjusted annual rate of 340,000 units.

The larger single-family sector dropped by 1.7 percent to an annual rate of 692,000 units. It was the 12th consecutive monthly decline and pushed single-family building activity to its lowest point in 17 years, since a severe housing slump in the early 1990s.

Applications for building permits, considered a good sign of future activity, also recorded an increase in April, rising by 4.9 percent to 978,000 units. It was the first gain in permits in five months.

But economists believe housing construction will remain under pressure until builders have more success in reducing a huge backlog of unsold homes.

That effort is being made more difficult by a record wave of foreclosures as millions of borrowers lose their homes because they cannot keep up with escalating payments, particularly on subprime mortgages, loans extended to people with weak credit histories.

By region of the country, construction posted the largest gain in the Midwest, an increase of 24.4 percent when compared to March. Construction rose 18.5 percent in the West and was up 3.6 percent in the South. However, construction fell by 12.7 percent in the Northeast.

Even with the improvement, housing construction nationwide was 30.6 percent below the level of activity a year ago.

The National Association of Home Builders reported Thursday that its monthly survey of builder sentiment edged down in May to a reading of 19, just above the all-time low of 18 set in December. The survey had held steady at the low level of 20 from February through April.

David Seiders, the group's chief economist, said that conditions in the industry have continued to deteriorate.

CNBC
Thursday May 8, 11:10 am ET

The battered housing market has steadied and is ready to bounce back off an inevitable pullback from its boom times in the earlier part of the decade, said Ron Peltier, the CEO at Warren Buffett's Homeservices of America real estate company.

"I think the real truth is the market has been in a phase of correction," Peltier said on CNBC this morning. "We are seeing some light at the end of the tunnel."

At the same time, Peltier gave a candid analysis of what led to the housing meltdown in the first place.

He said the market sprinted ahead of itself price-wise, while unscrupulous lenders and appraisers compounded the industry's problems by putting too many people in houses they couldn't afford.

"We new it was an overheated market," Peltier said. "There were people for the first time ever having opportunity to buy part of the American dream under credit conditions and credit guidelines that were very, very shaky at best.

"And they were buying at the peak of the market with very low teaser rates, not fully understanding the implications of that adjustable-rate mortgage setting some time in the future and the probability that they could not afford that home under the new reset conditions. That's a travesty, because there are a lot of people that got hurt."

Peltier put much of the blame squarely on lenders who often doled out mortgages that did not require documentation regarding assets or income.

"A lot of people bought ahead of themselves," he said. "Frankly, I think to some degree the lending industry, the mortgage business, lost its moral compass in terms of providing the proper credit standards and qualifications."

As for how things shape up going forward, Peltier said market has returned to its pre-boom times, with home sales tracking at about 5 million annually.

"I think that's a normalized market and I think that's a sustainable level," he said.

But he divides the market into two parts: the primary market of discretionary sellers, and the distressed market, which includes some of the areas that saw the meteoric rise and now are suffering the consequences of excess.

"Housing prices are still within 8 to 10 percent of all-time highs," Peltier said. "The markets that have fallen off the most are actually the markets that were the most overheated."

Speculators hurt those markets, with 25 percent of all sales from 2001 to 2006 going to those betting on making quick profits rather than buying homes in which they planned to live for an extended period.

As the market normalizes, Peltier believes stability will return and prices and sales numbers will get back to sustainable levels.

He worries, though, about pressure on the consumer from soaring fuel costs and tightened credit standards at the institutions that were beaten down by the collapse of the subprime lending market.

"Buying a home is a function of how they can finance it," Peltier said. "If credit standards are extremely tough and expensive, the ability to close a sale is that much more difficult."

He called on Congress to find a workable solution to the housing crisis, something that has been elusive as the legislators and President Bush spar over who should benefit from pending legislation.

On the broader political landscape, Peltier said the housing industry generally does better when Republicans are in office, though he did not endorse a specific candidate in the presidential race.

"There has been more showboating and discussion than actual rubber that meets the road," he said regarding the legislative impasse. "The fact of the matter is we really need to have some new legislation in place to slow down and stall the foreclosures where people basically bought into a home under mortgage financing programs they didn't understand."