BUILDING HOMES

Fewer permits signal weakness ahead

WASHINGTON (AP) — Applications for home- building permits, a key gauge of future construction, fell in September by the largest amount in five months — a discouraging sign for the housing industry. A rebound in housing is needed to support a broader economic recovery.

Representatives for the industry told a congressional panel Tuesday that the $8,000 tax credit for first-time buyers needs to be extended and expanded to ensure the housing sector will emerge from the recession.

But the Obama administration, facing soaring budget deficits, has not decided whether to support any extension. And some private economists played down the impact of such a move, arguing that most interested buyers already had taken advantage of the tax break.

Meanwhile, the Labor Department said wholesale prices fell 0.6 percent last month on a drop in energy costs. Outside food and energy, core inflation edged down 0.1 percent. In the 12 months ending in September, core wholesale prices rose a modest 1.8 percent.

The Commerce Department said construction of homes and apartments rose 0.5 percent last month to a seasonally adjusted annual rate of 590,000 units. That was a weaker showing than the 610,000 economists had expected.

The applications for building permits fell 1.2 percent, the second setback in the past three months and the biggest decline since a 2.5 percent drop in April. It likely means construction will weaken a bit in coming months, partly because builders had accelerated projects to complete them before the tax credit expires Nov. 30.

The industry also faces other challenges, including record levels of home foreclosures and unemployment that is currently at a 26-year high of 9.8 percent and not expected to peak until next summer, said Sal Guatieri, an economist at BMO Capital Markets.

But Patrick Newport, a housing economist at Global Insight, said a slow recovery likely will continue because inventories of new homes have fallen so far that builders have an incentive to ramp up sales with or without a tax credit.

“We see a very slow recovery for housing that will gradually gain strength over the next two to three years before construction gets back to more normal levels,” Newport said.

Housing has been struggling to recover this year after the worst collapse in decades, which helped pull the overall economy into the longest recession since the 1930s. Real-estate agents and home builders are lobbying Congress to extend the tax credit, arguing government support remains critical.

At a hearing Tuesday before the Senate Banking Committee, Sen. Johnny Isakson, R-Ga., who spent his career as a real-estate agent before being elected to Congress, said “this market is going to die a sudden death” without an extension.

Isakson and committee chairman Christopher Dodd, D-Conn., want to extend the credit until June 30 and to drop the requirement that the credit be available only to first-time buyers at an estimated cost of $16.7 billion.

The lawmakers have suggested that their measure be attached to an extension of federal assistance to the millions in danger of exhausting unemployment insurance benefits.

Housing Secretary Shaun Donovan testified that supporting the housing market “can be very expensive, especially at a time of significant budget deficits.”

The administration will make a recommendation on whether to extend the credit in the coming weeks, after studying data on tax filings from the Internal Revenue Service.