Housing construction climbs to new 9 month high

Housing construction hits highest in 9 months

Most of the gains come from apartments; single-family homes still lag

WASHINGTON - Adding to evidence the recession has ended, housing construction rose in August and fewer laid-off workers sought jobless aid last week.

Still, the reports suggested a slow and fragile economic recovery. The rise in housing starts was due solely to a jump in the volatile apartment-building category, and unemployment claims remain far above levels associated with a healthy economy.

And even as the housing industry begins to recover from its worst downturn in decades, a glut of unsold homes and record levels of home foreclosures are weighing on the industry.

Construction of single-family homes and apartments rose 1.5 percent to an annual rate of 598,000 units, the highest level since November, the Commerce Department said Thursday. That was slightly lower than the 600,000-unit pace economists had expected. And it remains more than 70 percent below the peak rate hit in 2006.

The tentative improvements in housing are most likely a rebound “from unsustainably weak results ... reinforced by a temporary boost to demand” from the $8,000 first-time homebuyer tax credit that ends Dec. 1, Joshua Shapiro, chief economist at MFR Inc., wrote in a note to clients.

“Gains from here on will probably be much more difficult to achieve,” due to high unemployment, tight credit and the large number of homes already on the market, he said.

Applications for building permits, a gauge of future activity, rose 2.7 percent in August to an annual rate of 579,000 units, slightly below the 580,000 level that had been forecast. But for single-family homes, permits dipped 0.2 percent. They rose 15.8 percent for multifamily units.

The 1.5 percent rise in overall housing starts followed a small 0.2 percent dip in July. The August strength reflected a 25.3 percent surge in construction of multifamily units, a volatile sector that had fallen 15.2 percent in July.

Single-family home construction dipped 3 percent last month to an annual rate of 479,000 units, the first setback following five straight monthly gains.

Some economists held out hope that the drop would be temporary.

“A clear uptrend is emerging” in single-family homes, Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.

New-home construction could rise further in the next few months as builders respond to greater demand from first-time buyers for smaller homes, he added.

Initial claims for unemployment benefits dropped last week to a seasonally adjusted 545,000 from 557,000 the previous week, the Labor Department said. Wall Street economists had expected a small rise, according to Thomson Reuters.

The decline was the third in the past four weeks. The four-week average, which smooths out fluctuations, dropped to 563,000. Despite the improvement, that’s far above the 325,000 per week that is typical in a healthy economy.

The slow decline in unemployment claims may indicate that the recovery will be a relatively jobless one, similar to the rebounds from the 1991 and 2001 recessions, said John Canally, an economist at LPL Financial.

The number of people claiming jobless benefits for more than a week rose by 129,000 to a seasonally adjusted 6.2 million. The continuing claims data lags initial claims by one week.

When federal extended benefits are included, 9.01 million people received unemployment insurance in the week ending Aug. 29. That’s down from 9.16 million the previous week. Congress has added up to 53 weeks of extended benefits on top of the 26 weeks provided by the states.

Some economists said the overall housing construction gain was an encouraging sign that the worst is over for that troubled market.

“This sector is likely to start adding to growth rather than holding back the economy,” said Joel Naroff, chief economist at Naroff Economic Advisors.

Regionally, construction rose 23.8 percent in the Northeast and 0.9 percent in the Midwest. Activity was flat in the West and fell 2.4 percent in the South.

Builders have been ramping up because buyers want to take advantage of the federal taxcredit. The National Association of Home Builders said this week that its housing market index rose one point to 19 in September, reflecting growing optimism in the industry about rising home sales.

Homebuilders’ stocks jumped after the release of that report and mostly moved higher early Thursday. Shares of Beazer Homes USA Inc. jumped more than 6 percent and Hovnanian Enterprises Inc. rose more than 3 percent in mid-afternoon trading. Financial results for homebuilders also were better than expected in the latest quarter.

The Dow Jones U.S. Home Construction Total Stock Market Index has surged since bottoming in November but remains about 72 percent below the level achieved at its recent peak in 2005

Franklin wants to move ahead with key projects

Franklin leaders try to prioritize projects

How much money should the city spend on a slate of road and park projects in the next year while keeping its AAA bond rating intact and the city's savings account at a comfortable level?

Right now, there isn't a consensus among Mayor John Schroer and the city's eight aldermen about how to do all of that.

Aldermen have already discarded early attempts this year at setting a new capital improvements project list and are going back to the drawing board again. Their early top priorities were widening Hillsboro Road, starting the "Streetscape" road project on a portion of Columbia Avenue and launching Phase III of McEwen Drive.

All told, that would mean spending $32.5 million total during the next three years on that work.

Meantime, Schroer wants to lay out a spending plan to cover project costs across the next five to 10 years that might help the aldermen see what's been spent already and what needs to come.

For instance, Franklin has committed to spending more than $2 million on the Mack Hatcher Parkway extension this year and $4.8 million on building a new Interstate 65/Goose Creek interchange in 2013.

"What we have to do now is look at what we've got on our capital expenditures (list) and make some hard decisions," Schroer said. "Maybe we can only do only one of these projects right now. But in six months, if the economy changes and trends start growing, we can look at this model and maybe we can do some other things."

Money Worries Hinder Effort

First begun last year, the capital improvement projects list is a relatively new task for aldermen. Aldermen rank their top projects, assigning different points to the projects of greater importance. Some of those projects are being designed while others are in the midst of construction.

This year, Schroer asked the city's financial consultants at the PFM Group to create various spending scenarios and how those costs might potentially impact the city's bond rating. Franklin is one of only three Tennessee cities with an AAA rating from Moody's Investor Service.

With much of the city's revenues coming from local sales taxes, which have slowed during the national recession, Franklin officials are nervous about spending and covering debt.

"We used to sit around here and say 'If we have a 10 percent growth rate in sales taxes' and then we'd hit 12 (percent) — great," said Alderman Dana McLendon. "You can't make those assumptions anymore. Who knows?"

The city had estimated sales tax collections to be around $24.1 million for 2009, but city leaders say that number is likely to be lower now. The total in 2008 was $23.6, records show. New construction also is down.

Those worries prompted Franklin leaders to cut the city's budget this spring from $59 million to about $56 million. Then they set an even smaller figure of $54.5 million for the 2009-2010 budget.

But Alderman Ann Petersen worried that the city's existing debt taken on in years past will hurt this board's ability to launch new work.

"Years before, they saddled us with a lot of things that we don't have any control over," Petersen said.

Few Projects Will See Money

Even though aldermen had 71 projects to choose from in their rankings, financial reality is already forcing aldermen to concede that only a few will get money.

"We will not fund our top 10," said Alderman Pearl Bransford. "Through the work of this board and the various scenarios we might come up with two, possibly three, and that's going to be it."

Alderman Clyde Barnhill wants to re-examine previous construction bids to see if money might be saved through rebidding those projects.

One project on the list that's faced the criticism is the launch of the next phase of the city's Streetscape project on Columbia Avenue between Five Points and Fowlkes Street.

That work, which includes new sidewalks, Could cost more than $4 million.

Lambasted by some as mere beautification and hailed by supporters as possibly spurring economic development, the Streetscape work still is dividing aldermen.

Petersen and McLendon remain opposed to it ever being launched. Said McLendon: "We're putting up the wallpaper, and we don't have a roof."

But Alderman Beverly Burger sees the Columbia Avenue project as one that could mean helping the city.

"I see a deeper meaning here that is important for the city if we're ever going to grow our tourism," Burger said.

"I think it's a good business decision, not only for today but also five to ten years from now."