Jittery Home Builders Take A Breather On Starts

Housing starts posted a 1.5% gain in August, but the bump comes from a rebound in apartment construction that was enough to offset a fall in single-family homes.

Single-family starts slipped 3% from a month earlier, the Commerce Department said, reversing course after five straight increases.

It's a signal of caution from the home-building industry, which, after a multiyear slump, has savored a sales boost in recent months from a federal tax credit of up to $8,000 for qualified first-time home buyers.

With builders rushing to start and finish new homes so that deals can close before the looming Nov. 30 expiration, increased starts wouldn't have been surprising. But for new-home construction, August was too late to start a house and guarantee meeting the deadline.

"They naturally pulled back," said David Crowe, chief economist for the National Association of Home Builders in Washington.

There's a push to extend and expand the program to all buyers, but it's unclear if that will happen given the cost for lawmakers already under pressure to show fiscal restraint. The NAHB and other housing players this week launched a newspaper advertising campaign urging the extension of what it estimates has sparked more than 150,000 new and existing home sales this calendar year.

"Some of the builders are maybe afraid of what's going to happen if they don't extend the tax credit," said Leif Thomsen, chief executive of Mortgage Master, an independently owned mortgage company. "I think [recovery] is going to fall flat on its face if that doesn't happen."

Crowe said starts would have come in lower if builders weren't replenishing their inventory for an expected upturn. New-home supply is now at 7.5 months, down from a year at the downturn's height. A balanced market is six months.

"We've come a long way in a short period of time, with single-family starts up 34% in a span of just six months," Mike Larson, an analyst at Weiss Research, wrote in a note. "So it's no surprise to see builders take a breather."

The Dow Jones US Home Construction index was recently up about 1%, fueled by Standard Pacific Corp.'s (SPF) 2.1% gain. Pulte Homes Inc. (PHM), the nation's largest builder, gained 1.1%.

-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; [e-mail]

(Jeff Bater in Washington contributed to this article.)