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A second look at those housing starts

November 20, 2009 |  3:40 pm

Apartments under construction
It’s Friday and it’s slow, so let’s dig a little deeper into those housing-starts numbers that got investors running scared this week.

If you will recall, the Commerce Department reported that housing starts unexpectedly fell 10.6% to a seasonally adjusted 529,000 annual rate in October compared with the previous month. That was a 30.7% drop from October 2008.

Analysts said the drop probably had to do with trepidation from the building industry in October as uncertainty remained over whether Congress would extend its $8,000 tax credit for first-time buyers beyond its Nov. 30 deadline. Congress this month extended that credit through April and expanded it to include people who already own a home.

Certainly, fear that the popular but controversial subsidy could end had a part to play in the pullback. Starts of single-family homes dropped off 6.8% from September to a seasonally adjusted rate of 476,000, not a pretty statistic by any stretch.

But multi-family units (apartments and other big buildings) saw a much bigger drop, falling 33.3% from September to a seasonally adjusted rate of 48,000.

“When you break it down, actual starts were bad on both sides," said Weiss Research analyst Michael Larson. But clearly multi-family units were hit harder, he said.

Though economists describe those multi-family numbers as highly volatile, the plunge probably reflects the woes of the commercial real estate market as financing for apartments and other such properties has dried up as a result of the credit crunch.

It’s also a bad time for the rental market, with family members doubling up to live with each other and potential renters with good credit and steady jobs now able to purchase an entry-level home at a discount.

-- Alejandro Lazo

Photo: An apartment building under construction in Hollywood. Credit: Reuters