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U.S. new-home construction falls unexpectedly in December

WASHINGTON — The housing market remains a significant risk to the economy, data Wednesday showed, as bad weather across much of the country hammered the construction industry.

Along with icy storms, the real estate recovery is facing man-made headwinds. On Wednesday, the government said buyers will face higher fees and tougher standards for home loans backed by the Federal Housing Administration, a popular source of loans for first-time buyers.

Unemployment is expected to remain high throughout the year, which will drive the foreclosure rate to records.

"If we don't get some jobs, it's not going to make a difference," said Rick Jenkins, owner of R.J. Builders in Terre Haute, Ind.

Construction of U.S. homes and apartments fell 4 percent in December to a seasonally adjusted annual rate of 557,000 from an upwardly revised 580,000 in November, the Commerce Department said. The results for home construction were lower than the 580,000 forecast by economists surveyed by Thomson Reuters.

However, applications for building permits, a gauge of future activity, rose 11 percent to an annual rate of 653,000, a far stronger showing than economists had predicted and the highest level of activity since October 2008.

Like homeowners, builders are having trouble getting loans. David Crowe of the National Association of Home Builders said the industry has seen financing for new projects dry up steadily over the past 18 months.

Another source of worry is that lending standards are also tightening. The Federal Housing Administration, the dominant source of funding for first-time home buyers, said Wednesday it would raise fees and standards for borrowers to qualify. The agency needs to shore up its precarious finances amid fears that it will need a taxpayer bailout.

The FHA does not make loans, but rather offers insurance against default. Borrowers are willing to pay for the insurance because FHA loans require down payments of only 3.5 percent of the purchase price — a minimum level that will remain the same under the new rules.

U.S. new-home construction falls unexpectedly in December 01/20/10 [Last modified: Wednesday, January 20, 2010 10:51pm]
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