Nati Harnik  /  AP
Builders work on a home in Gretna, Neb., where a sign declares the home sold. Home construction rose slightly last month on the strength of single-family homes, but the market was still too weak to propel growth in the battered industry.
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updated 10/19/2010 11:26:09 AM ET 2010-10-19T15:26:09

Home construction rose slightly last month on the strength of single-family homes, but the market was still too weak to propel growth in the battered industry.

Construction of new homes and apartments unexpectedly rose 0.3 percent in September from a month earlier to a seasonally adjusted annual rate of 610,000, the Commerce Department said Tuesday. It was the strongest report on home construction since April.

Housing starts are up 28 percent from their bottom in April 2009. Still, they are down 73 percent from their peak in January 2006 and 40 percent below the 1 million annual rate that analysts say is consistent with healthy housing markets.

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The industry is "showing signs of stabilization and perhaps even a faint pulse," wrote Joshua Shapiro, chief U.S. economist at MFR Inc. in New York.

August's figure was revised upward to an annual rate of 608,000 from an earlier estimate of 598,000.

Construction was driven by a 4.4 percent monthly increase in single-family homes, the second consecutive increase for this category which represents about 80 percent of the market. Construction of condominiums and apartments fell by nearly 10 percent.

The number of building permits issued to build new homes, a sign of future activity, fell 5.6 percent from a month earlier to a seasonally adjusted annual rate of 539,000. That drop, however, was driven by a 20 percent decline in those for condominiums and apartments. Permits for single-family homes rose 0.5 percent.

That small increase, however, suggests that "meaningful strength in the immediate future will not be forthcoming," wrote Dan Greenhaus, chief economic strategist at Miller Tabak, in a note to clients.

High unemployment, slow job growth, and tight credit have kept people from buying homes. The housing market suffered its worst summer in more than 10 years, despite the lowest mortgage rates in five decades.

Weak sales mean fewer jobs in the construction industry, which normally helps power economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the builders' trade group.

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Builders remain pessimistic about the housing market, although their mood has improved slightly from this summer. The National Association of Home Builders said Monday its monthly index of builders' sentiment rose in October to 16, the first increase in five months. Still, a reading below 50 indicates negative sentiment about the market.

This fall's home sales may improve, but not by much. A huge backlog of foreclosed properties is dominating the market and providing competition for builders.

Construction activity rose 5 percent in the South and 3 percent in the Northeast. It was down by 8 percent in the Midwest and 4 percent in the West.

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