December drop caps a grim year for housing

Danny Johnston / AP

Work progresses at a new home construction site in Little Rock, Ark. Builders ended 2011 with a third straight year of dismal home building and the worst on record for single-family homes.

By msnbc.com news services

U.S. housing starts fell in December as groundbreaking on rental properties posted a big decline, splashing some cold water on hopes the still-weak housing sector could boost economic growth this year.

The Commerce Department said Thursday housing starts fell 4.1 percent last month to a seasonally adjusted annual rate of 657,000 units. Economists polled by Reuters had forecast housing starts edging down to a 680,000-unit rate in December.

A decline in housing starts last month contributed to the depressed number of homes started last year and offered a stark reminder that a housing recovery is a long way off.

2011 with a third straight year of dismal home building and the worst on record for single-family home construction.

Builders started just 606,900 homes last year. That is only slightly better than the previous two years, and it is roughly half the 1.2 million that economists equate with healthy housing markets.

Last year was also the worst for single-family home construction on records dating back a half-century. Builders started just 428,600. In a good economy, builders break ground on about 840,000.

Single-family homes are critical to a housing rebound because they account for roughly 70 percent of the market.

Most analysts say it will be years before the industry is fully recovered. Even a steady rise in apartment construction last year offered only a sliver of hope that 2012 will be a little better.

Renting is gaining popularity because of the weak housing market. Some are renting because they have no other option; they can neither afford nor qualify to buy a home. But others are choosing to rent because they have less confidence that homes will appreciate or even retain their value.

Sales of new homes last year are likely to be the worst on records dating back half a century. Record-low mortgage rates and plunging home prices have done little to lift the market.

Builders are struggling to compete with deeply discounted foreclosures and short sales ? 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 an outsize 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 sales have fallen is that previously occupied homes have become a better deal than new homes. 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 homebuilders' trade group said Wednesday that its survey of industry sentiment rose in January to 25, the highest level since June 2007. Still, any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.

The Associated Press and Reuters contributed to this report.

Source: http://bottomline.msnbc.msn.com/_news/2012/01/19/10189164-housing-starts-drop-more-than-expected

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