Housing construction likely posted modest gain in September but recovery still bumpy

Ahead of the Bell: Housing Starts

WASHINGTON — New home construction likely inched higher in October as builders seized on the promise of more orders due largely to a federal tax credit for first-time homebuyers.

Construction of new homes and apartments is expected to grow 1.7 percent to a seasonally adjusted annual rate of 600,000, according to economists surveyed by Thomson Reuters. Building permits, seen as a good indicator of future activity, are expected to creep up 1.2 percent to an annual rate of 580,000 units.

The Commerce Department is scheduled to release the report Wednesday at 8:30 a.m. EST.

Builders slammed the brakes on construction after the housing bubble burst, and housing starts plunged to the lowest point in a half-century in April.

Construction then began a recovery, rising to the highest level in nine months in August, led by apartment building construction. Housing construction rose a modest 0.5 percent to an annual rate of 590,000 new homes and apartments in September. Applications for new building permits, however, fell 1.2 percent to an annual rate of 573,000 units.

But builders have been ramping up as new home orders have improved due to the tax credit, which covers 10 percent of a home price up to $8,000.

The incentive had been set to expire Nov. 30, but Congress extended it earlier this month.

Buyers who have owned their current homes for at least five years are eligible for tax credits of up to $6,500, while first-time homebuyers — or anyone who hasn’t owned a home in the last three years — would still get up to $8,000. To qualify, buyers have to sign a purchase agreement by April 30, 2010, and close by June 30.

Meanwhile, the National Association of Home Builders said Tuesday its housing market index remained unchanged in November, reflecting a cautious outlook from residential developers as they waited to learn whether Congress would extend a homebuyer tax credit.

The trade association said its index stood at 17 for the second straight month. Index readings below 50 indicate negative sentiment about the market.