WASHINGTON - The budding economic recovery is getting little help from the home building industry, which normally creates jobs and boosts growth as a recession ends.
Construction of homes unexpectedly plunged last month to its lowest point since April, the Commerce Department said Wednesday. The weak figures show that builders still lack confidence that buyers can soak up the glut of unsold homes already on the market - a supply magnified by a record number of home foreclosures.
The figures also illustrate how much the fledgling recovery depends on government support. Builders broke ground on fewer homes in part because of uncertainty in October about whether Congress would extend a tax credit for homebuyers. Earlier this month, lawmakers renewed the credit and extended it to more buyers.
Even with government aid, the weakness of the housing sector is dragging on the recovery.
"It will take a while before residential construction begins to contribute meaningfully to growth," Jennifer Lee, an economist at BMO Capital Markets, wrote in a research note.
Construction has been weakened as foreclosures have flooded the housing market with bargain-priced properties that sometimes sell for cheaper than builders' costs. The number of homes under construction last month fell 3.4 percent to 560,000, the lowest on records dating to 1970.
In Northern Nevada, people are buying homes, but many of them are bank owned, said Mike Dillon, the executive director of the Builders Association of Northern Nevada.
"Until we as a community get through the inventory in that market, you're not going to see tremendous growth in new construction," Dillon said.
Mike Allen of Valley Reality and Management in Carson City said many of the homes he's brokered this year are short sales, but that also means the housing inventory is dropping.
"I think by next spring we'll see a little bit of a difference," he said, noting the home buyer tax credit is making a difference among his clients.
Buyers who have owned their current homes for at least five years are now eligible for tax credits of up to $6,500, while first-time homebuyers would still get up to $8,000. To qualify, buyers have to sign a purchase agreement by April 30.
Wednesday's report on home construction said building of homes and apartments fell 10.6 percent in October to a seasonally adjusted annual rate of 529,000, from an upwardly revised 592,000 in September. Economists polled by Thomson Reuters had expected a pace of 600,000.
Applications for building permits, a gauge of future activity, fell 4 percent to an annual rate of 552,000 units. That was the lowest since May and missed analysts' expectations of 580,000. But permits for single-family homes fell only 0.2 percent.
(Nevada Appeal reporter Brian Duggan contributed to this artilce. Reach him at bduggan@nevadaappeal.com)