Housing Starts Head South

Housing construction — which started off the year with a bang — declined in April for the second month in a row, a sign the building sector may be losing some steam.

Builders broke ground last month on 1.56 million units, at a seasonally adjusted annual rate, a 5.4 percent decline from the March level, the Commerce Department reported Thursday.

In March, housing construction declined by 8.1 percent, according to revised figures. That was an even bigger drop than the government previously reported.

In a related development, the number of new jobless claims rose in the latest week, staying above the key 400,000 mark for two months.

First-time claims for state unemployment benefits rose 2,000 to 418,000 in the May 11 week, up from a revised 416,000 in the prior week, the Labor Department said.

Economists view claims above the 400,000 mark as a sign of a deteriorating labor market. In a sign people are struggling to find work, the number of unemployed workers continuing to collect benefits rose to 3.86 million in the May 4 week, the highest since 1983.

On the housing front, mild weather early in the year helped to power construction, which remained solid throughout last year's recession. Analysts have been predicting a slowdown in the sector, saying that robust levels of activity seen through much of last year and the beginning of this year couldn't be sustained.

Unclear about the strength of the economic recovery, the Federal Reserve last week left short-term interest rates unchanged at 40-year lows. Economists are hopeful that low borrowing costs will motivate consumers to keep on spending and businesses to step up investment, which would aid the recovery.

One of the Fed's concerns is how consumers — who kept buying big-ticket items such as homes and cars throughout the slump — would hold up coming out of it.

Fed Chairman Alan Greenspan has projected that consumers, whose spending accounts for two-thirds of all economic activity in the United States, probably would have less pent-up demand, making for a less than sizzling recovery.

In the housing report, construction of single-family homes dipped by 2 percent in April to a rate of 1.27 million units. That followed a steep 12 percent decline the month before.

Work on multifamily housing, including apartments and condos, fell 11.5 percent last month to a rate of 261,000. That compared with a 8.1 percent rise in March.

By region, housing starts plunged by 24.1 percent in the Northeast to a rate of 126,000. In the Midwest, they plummeted 19.5 percent to a rate of 276,000. In the West, housing construction fell 5.8 percent to a rate of 377,000. But in the South, starts rose 5.6 percent to a rate of 776,000.

Even with the slowdown in home construction, analysts predict the sector will continue to be healthy.

Relatively low mortgage rates and solid housing appreciation make purchasing a home an attractive investment.

Mortgage rates have been hovering below the 7 percent mark, providing prospective home buyers with good financing conditions. Last week, the average rate on a 30-year fixed-rate mortgage averaged 6.79 percent, according to Freddie Mac, the mortgage company.

Against this backdrop "builders have every reason for continued optimism about their sales prospects," said Gary Garczynski, president of the National Association of Home Builders.