As housing starts jump, is market stabilizing?

07.17.09
By Nicholas Storie

Are American families finally returning to the housing market? New figures provide evidence that the market could be stabilizing.

The number of new houses that began construction in the U.S. rose more than expected last month, while applications for building permits also increased.

Figures from the Commerce Department show that housing starts rose to 582,000 on a seasonally adjusted basis, which is a 3.6 percent increase from May and the highest level seen for seven months.

In particular, there was a surge in housing-starts for single-family residences, which grew by more than 14 percent between May and June. This jump reflected the largest increase in starts for these types of homes since late 2004.

Meanwhile, applications for building permits - which indicate future activity - rose at the highest pace seen in a year.

Over the past several months, the average home price has dropped considerably, while first-time buyers may be attracted by the opportunity to take advantage of a tax credit of up to $8,000.

Still, although housing starts and building applications may be rising, experts say there are still a large number of foreclosed properties on the market that could slow down the market's recovery.

Earlier this week, the Obama administration vowed to do more to help American families stop foreclosure, as critics say existing plans have helped only a small proportion of troubled borrowers.

Treasury Secretary Tim Geithner and Housing Secretary Shaun Donovan said that home loan servicers need to "devote substantially more resources" to the government's loan modification program to ensure its success.

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Housing starts increased by 3.6% during June.