Construction of new homes in the US posted a small gain in April but applications for building permits plunged by the largest amount in 17 years, a dramatic sign that the country’s housing industry is still in a steep slump.

The US Commerce Department yesterday reported that construction of new homes and apartments rose by 2.5 per cent in April compared to March to a seasonally adjusted annual rate of 1.528 million units.

Even with the improvement, housing construction is 25.9 per cent lower than a year ago. And in a worrisome sign for the future, builders cut their requests for new construction permits by 8.9 per cent in April. That was the sharpest drop since a 24 per cent fall in February 1990, another period when housing was going through a significant downturn.

Housing, which had enjoyed record sales in both new and existing homes for five straight years, saw the boom end dramatically in 2006 with many formerly red-hot sales areas suffering big declines in sales and prices. The slump in housing has been a drag on the overall economy, pushing business growth down to a lacklustre 1.3 per cent in the first three months of this year, the weakest performance in four years.

A survey by the US National Association of Home Builders released on Tuesday indicated that there are more troubles to come as builder sentiment fell to a reading of just 30, matching the low point in the current downturn set last September.

Meanwhile, industrial production in the US rose more than forecast last month as cold weather boosted electricity demand and manufacturers stepped up output after whittling down excess inventories.

The 0.7 per cent increase in production at factories, mines and utilities followed a revised 0.3 per cent decrease in March that was bigger than originally reported, Federal Reserve figures showed yesterday. Capacity utilisation, which measures the proportion of plants in use, rose to 81.6 per cent from 81.2 per cent in March.

Source: The Business Times, 18 May 2007