Construction on new housing was statistically flat in September, rising just 3,000 to a 590,000 annual rate, the U.S. Commerce Department announced Tuesday, as a large decline in multi-family units offset an increase in single-family home construction.

Economists surveyed by Bloomberg News had expected housing starts to total a 615,000 annualized rate in September. Housing starts totaled a revised 587,000 annual pace in August and a 581,000 annual pace in July.
In September, starts of single-family homes jumped 3.9 percent to a 501,000 annual rate, but multi-family unit construction plummeted 15.2 percent to an 89,000 annual rate. What's more, units completed fell 10.2 percent in September to a 693,000 annual rate -- the lowest reading for that metric in more than a generation. Building permits declined 1.2 percent to a 573,000 annual rate.

Further, in the past year housing starts are down 28 percent -- and down about 70 percent since the housing boom's peak.

However, since January housing starts are up 21 percent. Still, despite the decent recovery in housing starts in 2009, investors should keep in mind that any increases in housing sector activity stem from a very low point with depressed construction levels, following the nation's worst housing recession in more than 25 years. In other words, at least during the initial stage of the economic recovery, large gains in housing starts will be relatively easy to achieve, given the period of depressed building activity during the recession.

Economists follow the housing start statistic because of the large role residential real estate has played historically in the U.S. economy. Housing affects commerce in companion sectors, such as furniture, appliances, insurance, and landscaping, among others. Hence, a sustained increase in housing starts usually puts upward pressure on U.S. GDP.

Analysis: September's housing start stat was statistically neutral, but will probably support Congressional lawmakers who are pushing for an extension of the $8,000 federal income tax credit for first-time home buyers. Combined with the dip in the National Association of Home Builders index to 18 in October from 19 in September, lawmakers should be able to make a case that the U.S. economy is hardly strong enough to support robust U.S. housing sector activity. Further, the National Association of Realtors is lobbying for an extension of the program into 2010, arguing that the still-fragile U.S. housing market needs the purchase incentive program. Bottom line: Given the likely mild U.S. recovery in the next three quarters, the housing sector and the nation could benefit from an extension of the $8,000 credit through at least June 2010. A better tack: extend it through September 2010.

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