Housing starts in June highest in four years

— -- Housing starts jumped 6.9% in June to a 3 ½-year high, underscoring the residential real estate's slow recovery as a bright spot in a sputtering economy.

Construction of homes and apartments rose to a seasonally adjusted annual rate of 760,000 in June, the Commerce Department said Wednesday. That exceeded analysts' estimates and was the highest level since October 2008. Single-family home starts increased 4.7% to 539,000, highest since March 2010, though activity that year was inflated by a federal tax credit for home buyers.

Building-permit applications, a barometer of future construction, fell 3.7% to a seasonally adjusted pace of 755,000, but the decline was driven by a 10.9% drop in multifamily permits, which can be volatile.

After hitting all-time lows in the recession, single-family starts began to pick up the second half of last year and kicked into higher gear the past six months. Multifamily construction began to turn up about 18 months ago as Americans who lost their houses to foreclosure, among others, turned to renting.

"We're finally starting to get some traction and move up in a credible way," said Robert Denk, senior economist for the National Association of Homebuilders.

Housing starts rose 36.9% in the West, 22.2% in the Northeast and 4.2% in the South, while falling 7.3% in the Midwest.

Yet the housing market is still far from healthy. IHS Global Insight expects about 765,000 homes to be built this year, up from 612,000 in 2011, but that's about half the 1.5 million annual starts that would constitute a normal market, said IHS economist Patrick Newport. He and Denk said it will take three to four years for construction activity to return to normal.

Credit conditions remain tight and nearly a quarter of homeowners owe more on their mortgages than their homes are worth, keeping them from moving to new units. And foreclosures continue to dump an outsized supply of homes on the market.

But despite a slowdown in payroll growth the past three months, employers have added nearly 4 million jobs in the past two years, prompting young adults who had moved in with parents or friends to rent apartments or buy homes, Newport said. At the same time, he said, inventories of about 144,000 new homes are near record lows and less than half the normal supply.

Meanwhile, home prices have stabilized recently, giving some Americans the confidence to trade up to new homes, Denk says. "There's a lot of pent-up demand," he says, adding that a weakening recovery likely would slow but not derail the construction rebound.

After hampering the economy the past few years, Newport expects the housing market to add about a quarter of a point to expected economic growth of 2% this year.

Ed Kopal, owner of Kopal Building and Design in Tyler, Tex., plans to build 12 to 14 homes this year, up from five last year as his revenue increases sevenfold to about $7 million. For the first time in several years, he's building homes worth at least $1 million as well as a community of 32 houses that don't have buyers yet.

Buyers, he says, want to take advantage of low-interest rates. "They feel like interest rates will go up next year," he says, and want to act before this fall's presidential election potentially alters the economic landscape.

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