May 19 (Bloomberg) -- Builders broke ground on the fewest homes on record in April as a plunge in work on condominiums and apartment buildings overwhelmed the second straight gain in starts on single-family properties.

Housing starts slid 13 percent to an annual rate of 458,000, a lower level than forecast, Commerce Department figures showed today in Washington. The drop was led by a 46 percent tumble in multifamily starts, a category that tends to be more volatile.

The slump in homebuilding has brought the supply of new properties below the rate that new households are being created, offering prospects of a recovery in the second half of 2009, analysts said. Surging unemployment and the continuing credit crunch mean the recovery is likely to be weak, they added.

“This continues to support the story that new construction probably bottoms by early summer,” said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina. “We’re getting closer but that doesn’t mean we’re looking for a strong rebound” he said, adding that “obviously, financing remains difficult for builders and buyers alike.”

Home Depot Inc. and Lowe’s Cos. this week both posted first-quarter earnings that exceeded analysts’ estimates, underscoring signs of a turn in the industry. Confidence among U.S. homebuilders in May rose to the highest level since September, a National Association of Home Builders/Wells Fargo survey showed yesterday.

Stocks, Treasuries

Stock-index futures surrendered gains after the report, while the Standard & Poor’s 500 Index opened little changed and was down 0.1 percent at 908.53 as of 9:45 a.m. in New York. Treasuries also were little changed, with yields on benchmark 10-year notes at 3.24 percent.

Starts were projected to increase to a 520,000 annual pace from a 510,000 previously estimated pace the prior month, according to the median forecast of 74 economists surveyed by Bloomberg News. Estimates ranged from 465,000 to 564,000.

Building permits, a sign of future construction, fell 3.3 percent to a record low pace of 494,000; permits for single- family properties increased. Total permits were forecast to rise to a 530,000 annual rate, according to the survey median.

Starts by Type

Construction of single-family homes rose 2.8 percent to a 368,000 rate, today’s report showed, the second straight monthly gain. Work on multifamily homes, such as townhouses and apartment buildings, plummeted to an annual rate of 90,000 from 167,000 the month before.

“Now that fewer homes are hitting the market for sale, the growing U.S. population will have fewer homes to choose from,” Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co. in New York, wrote in a note to clients today. “This will undoubtedly be a game changer for inventories and prices.”

The decrease in starts was led by a 31 percent decline in the Northeast and drops of 21 percent in the South and the Midwest. Starts in the West rose 43 percent.

Home starts have plunged from a peak annual rate of 2.27 million in January 2006, which capped the biggest housing boom in six decades. Falling construction has weighed on economic growth and plunging home prices helped ignite the global credit crisis that exacerbated the economic slump.

Home Sales

Still, housing data in recent weeks have shown signs of stabilization. Sales of existing homes, which in January reached the lowest since records began, have held within a narrow range centered on a 4.6 million annual rate for five months. Sales of new houses, while more than 70 percent below their 2005 peaks, have bounced from a record low set in January.

Foreclosure-driven declines in prices have helped the resale market settle. Distressed properties have made up as much as 50 percent of existing-home purchases in recent months, according to the National Association of Realtors.

The biggest contraction in residential construction on record helped builders trim their excess supply even as sales faltered. The number of unsold new houses dropped in March to the lowest level since 2002, according to Commerce figures.

Still, construction companies are feeling the pain of having to slash prices to spur demand. D.R. Horton Inc., the largest U.S. homebuilder by market value, on May 5 reported a quarterly loss that exceeded analysts’ estimates as orders plummeted 45 percent from a year earlier.

“Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of both new and existing homes, increasing unemployment, tight credit for homebuyers and eroding consumer confidence,” Chairman Donald Horton said in a statement.

Financing also remains scarce, a quarterly survey of banks by the Federal Reserve showed last month. A larger share of lenders tightened terms on residential mortgages compared with the prior survey, the Fed said on May 4. At the same time, about 35 percent of domestic respondents saw increased demand for prime mortgages, the first gain in at least two years.

To contact the reporter responsible for this story: Bob Willis in Washington bwillis@bloomberg.net

Last Updated: May 19, 2009 09:49 EDT