NEW YORK (CNNMoney.com) -- New home construction and building permits fell in February, according to a government report issued Tuesday, but both readings beat economists' expectations.
Construction of new homes fell to an annual rate of 575,000 during the month, down 5.9% from January's revised rate of 611,000, the Commerce Department said. It was an increase of 0.2% from the 574,000 rate in February 2009.
Economists surveyed by Briefing.com expected February housing starts to dip to an annual rate of 570,000.
The number of building permits issued during February fell to a seasonally adjusted annual rate of 612,000. That was 1.6% below the revised January rate of 622,000, but up 11.3% from the February 2009 rate of 550,000.
Economists had expected building permits would fall to 601,000.
Single-family housing starts and building permits both declined last month. Construction on single-family homes dropped 0.6% while permits slid 0.2%.
Strength in the housing markets did not surprise Mark Vitner, a senior economist at Wells Fargo. He pointed to the homebuyer tax credit of $8,000 that's part of the government's economic stimulus package, saying construction needed to begin last month because the purchase must be settled by the end of June for the homebuyer to receive the credit.
"We had thought single family construction would hold up relatively well because builders needed to have some inventory to show prospective buyers in order for them to take advantage of the first-time homebuyer credit," Vitner said.
However, while single-family construction and permits remained relatively steady, new home construction on buildings with five units or more plummeted 43% last month, and permits fell 10%.
"The multi-family sector is in a very weak position right now," said David Crowe, chief economist with the National Association of Home Builders. "Rental vacancies are at historic highs and new renters are typically new employees. So since we haven't had much employment growth, we haven't had much demand for apartments and condominiums."
While Crowe said he doesn't forecast improvement in multi-family construction until 2011, he said he expects to see a gradual rise in single-family housing starts later this year.
"The single-family sector might hit a bit of a plateau in the late spring because the homebuyer credit will have expired, but I still see about a 25% improvement in 2010 over 2009," he said.
Regionally, housing starts declined the most in the South, falling 15.5% in February. Construction dropped 9.6% in the Northeast.
"Numbers are all adjusted to reflect normal weather patterns and the weather was certainly abnormal in these areas," said Crowe. "But in the Midwest and the West, where the weather was not abnormal, we saw increases."
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