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New home construction drops, but outlook brightens

By Hibah Yousuf, staff reporter

NEW YORK (CNNMoney.com) -- New home construction fell to an 8-month low in June, but there were indications of increased activity in coming months, the government said Tuesday.

Housing starts fell 5% from May to a seasonally adjusted annual rate of 549,000 last month, the Commerce Department said. That was the lowest rate since October 2009.

Economists were expecting housing starts to fall to 575,000. On a year-over-year basis, starts sank 5.8% from June 2009.

"The housing industry remains stuck in a rut, with both sales and construction activity moribund," said Mike Larson, real estate analyst at Weiss Research. "Builders simply lack the confidence -- or in some cases, the financing -- to ramp up construction, especially in the wake of the home buyer tax credit's expiration."

But building permits, a gauge of future construction activity, rebounded last month, posting the first gain since March. Permits rose to a seasonally adjusted annual rate of 586,000 last month, up 2.1% from a revised 574,000 in May.

Economists expected permits to drop to 572,000. Permits were down 2.3% from June 2009.

"Cheap mortgage rates and cheap homes should help ease the housing market's pain," Larson said. "But until we see signs of life in the labor market, we're just not going to see a robust recovery -- only more malaise."

The monthly fall in housing starts followed a sharp drop in May, the first month after the end of a government tax incentive of up to $8,000 for homebuyers.

New construction of single-family homes, the key sector of the housing market, slipped 0.7% last month to an annual rate of 454,000.

The annual rate for new construction of multi-family homes -- buildings with 5 or more units -- was 88,000.  To top of page

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