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The New Economy

US housing starts fall, ending two-month rally

By / August 18, 2009

Construction of new US homes – such as this one near Chapel Hill, N.C., – dipped an unexpected 1 percent last month.

Gerry Broome/AP

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America's housing downturn has been so long and deep that stabilization looks downright exciting by comparison. But that's not growth. Signs of an upturn remain elusive.

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In July, housing starts ended their two-month rally, falling to a seasonally adjusted annual rate of 581,000, the Commerce Department reported Tuesday. That was down 1 percent from the rate in June. Analysts had been expecting a small uptick.

The bright spot was that more single-family homes – 2 percent more – were started in July compared with June. The total was dragged down by the construction of condominiums and other multifamily homes, which fell 17 percent in July to 80,000, tying the record low set in April.

"Starts are still less than a quarter of what they were at the peak of the housing boom," wrote Paul Ashworth, an economist at Capital Economics, in an analysis. "The good news is that residential construction will probably add to GDP growth in the second half of the year. The bad news is that the housing sector is now such a small part of the overall economy that the rebound won't make much impact at the aggregate level."

New home construction is traditionally an important element of gross domestic product because it affects a wide range of industries from lumber yards to furniture and appliance stores to mortgage lenders. One day, it will become a big driver again.
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