AP
Scott Nelson carries in new doors to a new home in Pepper Pike, Ohio. Home construction nudged up in November after two months of declines.
msnbc.com news services
updated 12/16/2010 11:14:18 AM ET 2010-12-16T16:14:18

The home construction industry showed signs of life in November and foreclosures fell to their lowest level in 18 months. But analysts say there is little reason to expect a big housing rebound in the year ahead.

Builders broke ground last month on new homes at a seasonally adjusted annual rate of pace of 555,000 units, a 3.9 percent rise from October, the Commerce Department said Thursday.

That compared with a rate of more than 2 million units at the height of the boom in 2005 and is just 16 percent above the 477,000 unit pace of April 2009 — the lowest point on records dating back to 1959.

Still, it does appear that "the bottom has been found" in home construction, said analyst Joel Naroff of Naroff Economic Advisors.

He projected home construction would rise from about 590,000 units this year to 675,000 in 2011, still well below historical levels.

One reason is the abundance of inventory on the market as lenders are expected to foreclose on 1 million properties both this year and next.

Foreclosures fell by 28 percent last month from October, according to RealtyTrac, but that was largely because several big lenders halted foreclosure activities as they shorted out allegations of severe problems with legal paperwork.

The 67,428 homes lenders took back last month were the fewest since May 2009.

But even with the decline, it was enough to push the total number of repossessions so far this year to more than 980,000 — the highest annual tally of properties lost to foreclosure on RealtyTrac's records dating back to 2005.

"It's almost impossible to imagine that we won't break a million" for the year, said Rick Sharga, a senior vice president at RealtyTrac. "Unfortunately, it's a record that we'll probably break again next year."

The housing industry also is suddenly facing the headwind of rising mortgage rates.

Even as the Federal Reserve is taking aggressive new steps to pump more money into the economy and keep interest rates low, mortgage rates have risen for five straight weeks from their historically low levels, according to mortgage giant Freddie Mac.

The average rate for a 30-year, fixed-rate mortgage this week was 4.83 percent, up from 4.61 percent last week. The rates include an average fee of 0.7 percent of the loan amount.

"Market concerns over stronger economic growth that, in the near term, could lead to an increase in inflation have sparked a rise in bond yields, and mortgage rates have followed," said  Frank Nothaft, vice president and chief economist, Freddie Mac.

Other analysts have said rates are rising on concern about the rising budget deficit as the lame-duck Congress is close to extending Bush-era tax cuts and adding new payroll tax cuts to the package.

All the construction activity last month came from building single-family homes. They increased to a pace of 465,000 units, a 6.9 percent rise from October. Apartment construction fell 9.1 percent to a unit pace of 90,000.

Housing permits, a barometer of future demand, fell 4 percent to an annualized rate of 530,000, reflecting the weakness in apartment construction. It marked the lowest level in permits since April 2009.

More than a year after the recession ended, the housing market is struggling.

The Fed Tuesday cited that as a reason it decided to stick with a $600 billion Treasury bond-buying program intended to bolster the economy.

Americans are trying to repair personal finances, battered by the recession. So they aren't in a rush to make big-ticket financial commitments and buy homes. Plus loans are still hard to come by. A wave of home foreclosures is keeping home prices down. That's good for would-be buyers, but not for builders.

The weak housing market is one of the negative forces confronting a slowly improving economy. So is high unemployment, now at 9.8 percent.

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 National Association of Home Builders.

U.S. homebuilders remain uneasy about the housing market's prospects in the months ahead, discouraged by weak job growth and millions of foreclosures, the association says. Its monthly reading of builders' sentiment remained unchanged in December at 16.

Builders are anticipating fewer sales in December than most years, says NAHB Chairman Bob Jones, mostly because of competition from sharply discounted foreclosed homes, tighter lending standards and poor overall job growth. December is traditionally one of the slowest times for sales.

The Associated Press contributed to this story.

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