By Courtney Schlisserman July 17 (Bloomberg) -- U.S. builders unexpectedly broke ground on more homes in June as construction of single-family projects jumped by the most since 2004, signaling the market is stabilizing. The 3.6 percent increase brought starts to an annual rate of 582,000, the highest level since November and followed a 562,000 pace in May that was higher than previously estimated, the Commerce Department said today in a Washington. Building permits, a sign of future construction, rose the most in a year. Lower borrowing costs and plunging prices are making houses more affordable, helping to stem the decline in sales and alleviating the worst housing slowdown since the Great Depression. Stabilization would rid the economy of the drag from declines in residential construction that have shaved almost a percentage point off growth over the last three years. ``There are some good signs,'' Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York, said before the report. ``Homebuilding is stabilizing at a low level.'' Economists forecast starts would fall to a 530,000 pace, from a previously reported 532,000 in May, according to the median of 73 forecasts in a Bloomberg News survey. Last month's reading exceeded the highest estimate, with projections ranging from 479,000 to 564,000. Building permits climbed 8.7 percent to a 563,000 annual rate, the highest level of the year. Single-Family Starts Construction of single-family homes jumped 14 percent, the biggest gain since December 2004, to a 470,000 rate. The fourth consecutive increase brought single-family starts to the highest level since October. Work on multifamily homes, such as townhouses and apartment buildings, dropped 26 percent after surging 66 percent in May. The increases in starts of single-family homes adds to signs that the housing slump may be nearing a bottom. Combined sales of existing and new homes climbed to a 5.1 million annual rate in May, the highest level so far this year. U.S. homebuilders are becoming less-gloomy about the industry. The National Association of Home Builders/Wells Fargo index of builder confidence gained to 17 in July, the highest level in 10 months, the group said yesterday. Measures of current single-family sales and buyer traffic increased. Home starts were down 46 percent from a year earlier, today's report showed, and are down from a peak annual rate of 2.27 million in January 2006, which capped the biggest housing boom in six decades. Fed Views Some Federal Reserve officials last month saw a danger of a renewed decline in the housing market, partly as mortgage rates increased. They also pointed to the continuing ``high rate'' of foreclosures as a risk that inventories could rise and prices fall further. ``Most participants viewed the sector as still vulnerable to further weakness,'' the central bank said in minutes of the Federal Open Market Committee's June 23-24 meeting released July 15 in Washington. ``Some expressed concern that the increases in mortgage rates seen over the inter-meeting period had the potential to further depress the demand for housing and thus impede an economic recovery.'' Borrowing costs have retreated once again since the Fed's meeting. The rate on a 30-year fixed loan fell to 5.14 percent in the week ended yesterday, the lowest level in almost two months, according to figures from Freddie Mac. The rate reached a record low of 4.78 percent in late April. Foreclosures Mounting loan defaults are a concern. Foreclosures rose 33.2 percent in June from a year earlier, RealtyTrac Inc. said yesterday. Also, a record 1.5 million properties received a default or auction notice or were seized by banks in the first half of the year. New-home sales likely will be little changed in coming months because of low consumer confidence and the difficulty would-be buyers have getting loans, Pulte Homes Inc. Chief Executive Officer Richard Dugas said at an investor conference June 23. ``Buyers are unwilling and unable to take on new mortgages,'' Dugas said at a conference in Boston. ``Despite the record fall in prices and the tremendous deal that consumers get relative to the 30-year mortgage rates where they are today, we're still having difficulty convincing people to get into the market.'' Some builders are more optimistic. ``Although key economic indicators remain mixed, we are beginning to see signs that some negative housing market trends may be moderating,'' KB Home Chief Executive Officer Jeffrey Mezger said in a statement June 26. While net orders for the second-quarter trailed the same period a year earlier, they were 59 percent higher than the first three months of 2009. To contact the reporters on this story: Courtney Schlisserman in the Washington newsroom cschlisserma@bloomberg.net; Shobhana Chandra in the Washington newsroom schandra1@bloomberg.net

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