California construction, while on the rise from February to June 2009, fell in July. The pace of single family residence (SFR) construction during July 2009 was at an annual rate of 22,000 starts; 37% below one year ago.

U.S. national construction of SFRs continued on a rise that started in March. July numbers rose nearly 2% from the previous month while building permits applied for in the month of July rose 6% from the previous month. This brings national construction up 37% from its winter low.

The increase in building has been supported by an $8,000 tax credit for first-time home buyers purchasing a home. The credit applies to homes purchased through November 30, 2009.

Builders are lobbying Congress for an extension of the tax credit. The National Association of Home Builders argues that new homes built create an average of three jobs, and generate an average of $90,000 in taxes for the local and federal government. New homes also translate to increased business for Home Depot and other construction-related companies. Home Depot’s annual sales improved in one of its most important markets: California.

On the other hand, national apartment construction fell 13% from June to July.

first tuesday take: The apartment occupancy numbers will be the dark side of this fleeting spurt of good news. As for California single family homes, they have been prebuilt and are in sufficient supply to meet new housing demand for the next three to four years. Add to that inventory the flood of real estate owned(REO) properties squashing home prices now and running well into 2012. With this inventory glut of new houses and resales, individual sellers of homes have stopped looking for buyers and started looking for tenants to reduce their negative cash flow and protect their credit rating, creating extensive competition with apartments for tenants.

Ramped up home construction (which brings in buyers prematurely, the lure being absolutely unnecessary government tax credits) will only help to push future sales prices and rents further down. This downward push in new housing inventory will most likely do more harm to the real estate economy than the extra jobs created through additional construction.

We in California need to remove distressed obsolete housing with a “Real Estate Clunkers” program: the government buys junk homes at 2005 prices (in the spirit of clunker car valuations so mortgage lenders make money), then junk-home owners purchase a new home from the flood of REO inventory, at today’s prices, with a maximum new loan-to-value (LTV) ratio of 70%.

Re: “Home construction up for 5th month in a row,” from the San Francisco Chronicle