Construction of new homes rose more than expected in April but new building permits fell sharply, signaling the industry’s rebound could be short-lived. The results show builders ramped up to meet demand from buyers seeking to take advantage of federal tax incentives, but are now scaling back their plans.
Building permits, a gauge of future activity, sank 11.5% to an annual rate of 606,000, the lowest since October 2009, according to the Commerce Department. Analysts were expecting a slight dip to a rate of 680,000.
Home sales have rebounded this year, helped by low mortgage rates and two government tax credits; $8,000 for new buyers and $6,500 for current owners who buy and move into another property. To receive the tax credit, borrowers had to have a signed offer by April 30 and must close the deal by the end of June.
“There is little doubt the housing numbers have been boosted,” by the tax credit, wrote Dan Greenhaus, Chief Economic Strategist with Miller Tabak + Co. Without the tax credits, many experts anticipate home sales will slow in the second half of this year. In addition, high unemployment and tight standards for mortgage lending continue to keep many buyers on the sidelines.
Construction of new homes and apartments rose 5.8 percent last month to a seasonally adjusted annual rate of 672,000. The increase was from an upwardly revised March level of 635,000.
The result was the highest since October 2008 and was driven by a 10 percent increase in the single-family market. Housing construction is now up more than 40 percent from the bottom in April 2009 but down 70 percent from the peak in January 2006.
Analysts surveyed by Thomson Reuters had expected construction to rise more modestly to a rate of 650,000. Nevertheless, a survey Monday showed homebuilders are feeling more optimistic. The National Association of Home Builders said its housing market index, which tracks industry confidence, rose three points in April to 22, the highest reading since August 2007. Readings below 50 indicate negative sentiment about the market.
Sales of new homes rose 27 percent in March, the biggest monthly increase in 47 years. Still, new home sales are down 70 percent from their peak in July 2005.