New-Home Construction Rises in July

Construction of new homes rises 1.7% in July to an annual rate of 546,000 units, missing expectations.
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WASHINGTON (

TheStreet

) -- Construction of new homes rose in July but not as much as expected.

The Commerce Department said early Tuesday construction of new homes rose 1.7% in July to a seasonally adjusted rate of 546,000 units, from a downwardly revised rate of 537,000 in June. The figures included a 4.2% increase in starts of new single-family homes, to 432,000 units, and a 32.6% jump in large apartment starts, to an annual rate of 114,000 units.

Economists had expected the figure to come in at 560,000 units, and view the most recent numbers as further evidence that the housing market is still working to regain its footing after federal tax credits for homebuyers expired April 30.

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The government report also said applications for building permits, a good indication of future building activity, fell 3.1% to a seasonally adjusted annual rate of 565,000, the lowest rate since May and a steeper decline than the expected rate of 580,000 units.

The

SPDR S&P Homebuilders

(XHB) - Get Report

, an exchange-traded fund that tracks the homebuilder sector, edged 0.1% higher in pre-market trading Tuesday. Shares of homebuilder

KB Home

(KBH) - Get Report

jumped 5.8% in pre-market trading, while

Toll Brothers

(TOL) - Get Report

pushed up 1.6% and

PulteGroup

(PHM) - Get Report

edged 0.1% higher.

Sentiment among homebuilders fell for the third straight month, according to a report from the National Association of Home Builders on Monday. The NAHB said its index of builder confidence in the market for newly built, single-family homes

fell to a reading of 13 in August

, missing expectations the index would edge higher to 15. A reading above 50 indicates positive builder sentiment, though NAHB's index has not been above that level in more than four years.

NAHB's chief economist David Crowe said the report reflected mounting hesitancy among potential home buyers, as well as "the frustration that builders are feeling regarding the effects that foreclosed property sales are having on the new-homes market, with 87% of respondents reporting that their market has been negatively impacted by foreclosures."

Crowe said the second half of 2010 should be better than the first for homebuilders as the U.S. jobs market grinds slowly toward recovery. Pent-up demand and historically low mortgage rates should also help the market for new homes pick up.

Last week the Mortgage Bankers Association said

mortgage applications edged up 0.6% in the prior week

as record-low home loan rates failed to spark demand in the housing market. Mortgage applications for home purchases ticked up just 0.3% while those to refinance home loans rose 0.6%. Refi applications accounted for 78% of all mortgage applications in the week.

>>Mortgage Applications Tepid Despite Rates

Consumers did not take advantage of record-low 30-year fixed loan rates of 4.57% in the MBA's reporting week, down from 4.6% in the prior week and 5.38% a year earlier. The week's rate was the lowest on record since the MBA began tracking the data two decades ago. The week's average 15-year rate of 3.95% also fell to record lows, from 4.03%.

The still-struggling housing market saw sales ramp up this spring as consumers rushed to take advantage of federal tax credits that offered as much as $8,000 for first-time homebuyers and $6,500 for repeat buyers moving into new primary residences. Following the expiration of those credits on April 30, the market saw a dramatic decline in demand for the month of May that spilled over into June. Lawmakers later extended the deadline to close on a home purchase and still qualify for the tax credit to Sept. 30.

>>4 Top Homebuilder Stocks: Life After the Tax Credit

In a separate report, the National Association of Realtors said last week the median sales price for previously occupied homes rose in 100 of the 155 metro areas it tracks in the second quarter. The national median price was $176,900, up from $174,200 in the year-earlier period and from $166,400 in the first quarter.

Even so, most industry sector analysts agree that home prices will continue to slide in the range of 5% to 10% before picking back up again, though bears will argue the drop will be closer to 25%.

-- Reported by Miriam Marcus Reimer from New York.

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