Builders began work on fewer homes than forecast in August, showing an industry that’s languishing more than two years into the U.S. economic recovery.
Housing starts dropped 5 percent to a three-month low 571,000 annual rate, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg News survey called for a 590,000 pace. Construction slumped in the Northeast during August, when Hurricane Irene battered the region. Building permits, a proxy for future construction, unexpectedly climbed.
Foreclosures, declining prices and a lack of employment are hindering construction and holding back an industry that’s typically helped spark economic rebounds from past recessions. Tighter lending standards and reductions in homeowner equity mean fewer buyers are able to take advantage of mortgage rates at record lows.
“The housing market is still in the doldrums,” Yelena Shulyatyeva, an economist at BNP Paribas in New York, said before the report. “We still have a huge oversupply, and that’s the problem we need to address before trying to stimulate any housing demand.”
Concern over housing and this year’s growth slowdown may prompt Federal Reserve policy makers to propose new measures to bolster the economy when they conclude their two-day meeting tomorrow.
Fed Chairman Ben S. Bernanke warned last month during a speech in Jackson Hole, Wyoming, that the central bank alone can’t lift sagging home prices or mitigate a wave of home foreclosures.
Index Futures
Stock-index futures maintained gains after the figures, with the Standard & Poor’s 500 Index climbing 0.6 percent to 1,205.3 at 8:32 a.m. in New York. Treasuries fell, pushing up the yield on the benchmark 10-year note to 1.98 percent from 1.95 percent late yesterday.
Housing starts estimates ranged from 570,000 to 634,000 in the Bloomberg survey of 78 economists. July’s pace was revised to 601,000 from a previous estimate of 604,000. Home construction totaled 554,000 units in 2009, the lowest since record-keeping began in 1959.
Today’s report showed permits rose 3.2 percent to a 620,000 annual rate in August, the highest this year and a sign construction may stabilize. Permits climbed in three of four regions, led by an 11.3 percent jump in the West. They climbed 6.3 percent in the Midwest and 3.3 percent in the Northeast.
One-Family Homes
New construction of single-family houses decreased 1.4 percent to a 417,000 rate in August from the prior month. Work on multifamily homes, such as townhouses and apartments, slumped 13.5 percent to an annual rate of 154,000.
Starts dropped in two of four regions, led by a 29.1 percent decline in the Northeast last month when Hurricane Irene pushed ashore. The storm caused losses of about $12.4 billion, according to an estimate by Kinetic Analysis Corp., a Silver Spring, Maryland, firm that predicts the effects of disasters.
The number of homes under construction in August dropped to a record-low 408,000 annual rate, today’s figures showed. In three of the four regions, the number of single-family dwellings being built dropped to all-time lows.
Declining stock values have made households less wealthy, helping push down confidence and discouraging big-ticket purchases. Unemployment above 9 percent also leaves fewer Americans able to take advantage of cheaper borrowing costs.
‘Economic Turmoil’
“With all of the economic turmoil, both domestic and international, there’s not much that points to an improving housing market at any point in the near future,” Ara Hovnanian, chairman and chief executive officer of Hovnanian Enterprises Inc. (HOV), said in call with analysts on Sept. 8. “Our internal business plan assumes market conditions do not improve.”
The weaker labor market helps explain a 33 percent jump in default notices sent to U.S. homeowners in August, RealtyTrac Inc. figures showed on Sept. 15. A growing glut of unsold homes that compete with new dwellings may keep hampering construction.
Confidence among U.S. homebuilders dropped in September to a three-month low as prospective buyer traffic, sales and purchase expectations declined. The National Association of Home Builders/Wells Fargo sentiment index decreased to 14, figures showed yesterday. Readings less than 50 mean more respondents said conditions were poor.
“High unemployment and volatile financial markets continue to undermine consumer confidence in spite of low mortgage rates,” Patricia Bedient, chief financial officer at Weyerhaeuser Co. (WY), said Sept. 15 at a forest products conference. Federal Way, Washington-based Weyerhaeuser owns about 6 million acres of U.S. timberland. “New home markets softened noticeably four to six weeks ago in response to weak employment data and political discord in Washington.”
To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
