Housing starts, industrial production both rose in April

WASHINGTON (AP) - Builders began work on more homes last month, evidence that the battered housing market is slowly healing.

The Commerce Department said Wednesday that builders broke ground at a seasonally adjusted annual pace of 717,000 homes in April from March. That's 2.6% more than March, which was revised higher. Construction rose for both single-family homes and apartments.

And a second report Wednesday said factory output increased in April, helped by a gain in auto production. Busier factories have driven hiring this year and helped the economy grow.

The Federal Reserve said factory production rose 0.6% in April, erasing a 0.5% decline in March.

Half the April increase reflected a 3.9% jump in the production of motor vehicles and parts. That's the fifth consecutive gain at auto plants and the biggest rise since January.

Ticking up

Overall industrial production increased 1.1% in April. In addition to the big gain at factories, output at mines and utilities both showed strong gains.

Factory output has risen 18.3% from its low in June 2009, the month the recession ended.

In the housing report, building permits, a gauge of future construction, fell last month from a 3� year high to a seasonally adjusted annual rate of 715,000. But that was because of a 23% drop in the volatile apartment category. Permits for single-family homes rose almost 2%.

"We continue to believe that the bottom has been put in for housing � and while improvement will not be vicious nor rapid, improvement it still will be," said Dan Greenhaus, chief economic strategist at BTIG, an institutional brokerage.

Even with the gains, the rate of construction and the level of permits requested remain roughly half the pace considered healthy. But the increase, along with rising builder confidence and stronger job growth, is a hopeful sign that the home market may finally be starting to recover nearly five years after the housing bubble burst.

Builders have grown more confident since last fall, in part because more people have expressed interest in buying a home. In May, builder optimism rose to the highest level in five years, according to the National Association of Home Builders/Wells Fargo builder sentiment index.

Homebuilders reported improving sales and higher traffic from prospective buyers, the survey showed. A gauge measuring confidence in sales over the next six months also rose to 34 from 31.

Mortgage rates have fallen to record lows, making home-buying more affordable. Still, many would-be buyers are having difficulty qualifying for home loans or can't afford larger down payments required by banks.

Though new homes represent just 20% of the overall home market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

There are some hurdles to a smooth recovery: Builders are struggling to compete with deeply discounted foreclosures and short sales - when lenders allow homes to be sold for less than what's owed on the mortgage.

Another reason sales have fallen is that previously occupied homes have become a better deal than new homes. The median price of a new home is about 30% higher than the median price for a re-sale. That's nearly twice the markup typical in a healthy housing market.