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HOMEBUILDERS LOSING OUT ON ECONOMIC RECOVERY

Associated Press

WASHINGTON - For homebuilders, it hardly feels like an economic recovery.

Nearly two years after the recession technically ended, the pace of construction is inching along at less than half the level considered healthy. Single-family home building, the bulk of the market, has dropped 11 percent in that time.

Builders struggle to compete with foreclosures that have forced down prices for previously occupied homes. The weakness weighs on the economy: Though new homes represent a small portion of overall sales, they have an outsized effect on jobs.

The Commerce Department said Tuesday that new home construction plummeted in April to a seasonally adjusted rate of 523,000 homes per year. A major drop in volatile apartment building pulled down the monthly figures. Strong tornadoes and flooding also disrupted construction projects throughout the South.

The first four months of this year, the pace of new home construction is barely ahead of 2009's - the worst year on records dating back a half century.

The April drop in new home construction was largely because apartment and condominium building plunged more than 28 percent. Single-family home construction, which makes up roughly 80 percent of the market, fell about 5 percent. Building permits fell 4 percent.

High unemployment and tighter lending standards have greatly reduced the number of potential buyers who could qualify for a mortgage. Those who are eligible have more incentive to buy a previously occupied home.

The median price of a new home was about 34 percent higher in March than the median price for a resale. That's more than twice the markup in healthy housing markets.

In some cities, prices are half of what they were before the housing market collapsed in 2006 and 2007. Many potential buyers who could qualify for loans are worried that prices will fall further. Others are hesitant to put their own homes on the market when prices are dropping.

The housing market has traditionally powered economic recoveries. Each new home built creates an average of three jobs for a year and generates about $90,000 in taxes, said the National Association of Home Builders.

In previous recessions, housing accounted for 15 to 20 percent of overall economic growth. In the first post-recession year, housing contributed just 4 percent to the economy.

Tornados and flooding along the Mississippi River were major factors in a 23 percent drop in building in the South, analysts said. Reconstruction efforts might lead to a "bounce back in May," said Paul Dales, senior U.S. economist at Capital Economics.

Monday, the builders' trade group said homebuilder sentiment was unchanged at 16 - the same level it has been for six of the past seven months. Any reading below 50 indicates negative sentiment about the market. The index hasn't been above that since April 2006.

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