Image: Homes under construction
Gerry Broome  /  AP
New housing construction continues in Chapel Hill, N.C., on Monday.
msnbc.com staff and news service reports
updated 8/18/2009 1:51:29 PM ET 2009-08-18T17:51:29

Construction of new homes and apartments dipped last month, but single-family home building increased, highlighting the split personality of the construction industry's recovery.

Still, the single-family home data helped bolster some confidence that the economy was beginning to recover from the deepest recession since World War II.

The Commerce Department said Tuesday that new construction fell 1 percent in July to a seasonally adjusted annual rate of 581,000 units, from an upwardly revised rate of 587,000 in June. Economists polled by Thomson Reuters expected a pace of 600,000 units.

The decline was led by a 13 percent drop in apartment building. But construction of single-family homes rose 1 percent to the highest level since October 2008. It was the fifth-straight monthly increase.

"There is mounting evidence that the housing recession is drawing to a close," said Harm Bandholz, an economist at UniCredit Markets and Investment Banking in New York.

"While construction activity in the single-family segment has started to pick up, the multi-family segment stays on a clear downward trend. This is the result of ongoing financing problems in the commercial real estate sector and stubbornly high vacancy rates."

Builders slammed the brakes on construction after the housing bubble burst, and in April housing starts plunged to the lowest point in a half-century. Then construction began a recovery, rising to the highest level in seven months in June before slipping again last month.

The industry is still a long way from non-recession levels. Housing starts last month were still nearly 38 percent below July last year.

Applications for building permits, an indicator of future activity, fell 1.8 percent to an annual rate of 560,000 units. Economists expected an annual rate of 580,000 units.

The industry is seeing increased demand from consumers who want to take advantage of a new federal tax credit for first-time homebuyers. It covers 10 percent of a home price up to $8,000. It is set to expire at the end of November.

While numerous signs have emerged that the U.S. housing market has stabilized, there are several threats to any recovery.

The unemployment rate, now 9.4 percent, is expected to surpass 10 percent, leaving more homeowners unable to pay their mortgages. Interest rates are still at attractive levels but they could rise, making buying a home less affordable.

Nevertheless, builders have been growing more optimistic. The National Association of Home Builders said Monday its index of industry confidence rose in August to the highest level in more than a year.

The Associated Press and Reuters contributed to this report.

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