U.S. Home Starts Drop More Than Forecast on Multifamily Slump
Builders in the U.S. began work on fewer homes than forecast in October as the industry remained mired near the depths reached during the recession.
Housing starts fell to a 519,000 annual rate, the fewest since a record low reached in April 2009 and down 12 percent from a revised 588,000 in September that was less than previously estimated, Commerce Department figures showed today in Washington. Work on multifamily units, which is often volatile, plunged 44 percent, swamping a 1.1 percent drop in single-family homes.
Record-low mortgage rates have failed to boost demand, highlighting the limits of Federal Reserve monetary policy in undoing the damage from the bursting of the housing bubble. Companies like D.R. Horton Inc. are bracing for the worst in early 2011 as unemployment hovers near 10 percent and the lifting of foreclosure moratoriums swells the supply of houses.
“Starts are a reminder of just how miserable the situation is in housing,” said Chris Low, chief economist at FTN Financial in New York. “Sales have been so weak for so long that we continue to see starts bouncing along the bottom.”
The cost of living in the U.S. rose less than forecast in October, indicating higher prices for commodities such as fuel aren’t filtering through into other goods and services, figures from the Labor Department also showed today.
The consumer-price index increased 0.2 percent after a 0.1 percent rise the prior month. Excluding food and fuel, so-called core costs increased 0.6 percent from October 2009, the smallest year-over-year gain in records dating back to 1958.
Treasury securities climbed after the reports, erasing earlier losses and propelled by the slowdown in inflation. The yield on the 10-year note, which moves inversely to prices, was 2.84 percent at 8:52 a.m. in New York, little changed from late yesterday. It had been as high as 2.88 percent earlier in the day. Stock-index futures held earlier gains.
Economists forecast housing starts would decrease to a 598,000 pace from a previously estimated 610,000, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from 550,000 to 625,000.
The number of single-family homes started dropped to 436,000. Work on multifamily homes, such as townhouses and apartment buildings, fell to an annual pace of 83,000, the fewest since February.
Building permits, a sign of future activity, rose 0.5 percent to a 550,000 rate, less than forecast, from 547,000 in September. The stabilization in permits indicates construction may not fall much more in coming months.
Building permits were forecast to climb to a 568,000 pace from a previously reported 539,000 the prior month.
Mortgage rates near record-lows have failed to prompt an increase in applications for loans to purchase homes. While the average rate on a 30-year fixed mortgage has hovered near the all-time low of 4.21 percent in the week ended Oct. 8, according to the Mortgage Bankers Association, the group’s index of applications to buy a home is down 38 percent from a six-month high reached in April.
Moratoriums placed on foreclosures at banks threaten to prolong the time it takes for the housing market and prices to fully recover as properties slated for repossession take longer to come to market. Attorneys general in 50 states are investigating home seizure practices after court documents surfaced showing finance-company employees had signed papers without ensuring their accuracy.
Foreclosures in the U.S. fell 9 percent in October from the previous month, the biggest decline in a year, RealtyTrac Inc. said last week. Repossessions “probably would have been higher,” without the moratoriums, RealtyTrac Chief Executive Officer James J. Saccacio said in a statement.
Builders were less pessimistic this month. The National Association of Home Builders/Wells Fargo confidence index increased to 16 from 15 in October, the group said yesterday. While that was the highest reading since May, measures below 50 mean more respondents said conditions were poor.
D.R. Horton, the second-largest U.S. homebuilder by revenue, expects a “challenging” 2011 for the industry as consumer confidence and employment remain weak, Chief Executive Officer Donald Tomnitz said Nov. 12.
The company’s home sales and closing volume probably will fall from this year, Tomnitz said on an earnings conference call. In 2011, the spring selling season, the strongest for builders, may fail to bring the traditional boost in demand, he said.
“I don’t see much on the horizon that would give anybody a great degree of comfort on the financial condition of the country,” Tomnitz said. “I just don’t see a lot of hope for a great spring market.”
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