Gain in March Starts of U.S. Homes Probably Failed to Make Up Lost Ground

A gain in housing starts in March probably failed to make up for ground lost the prior month as U.S. homebuilders continued to struggle almost two years into the economic recovery, economists said before a report today.

Work began on 520,000 houses at an annual pace, up 8.6 percent from the prior month, according to the median estimate of 77 economists surveyed by Bloomberg News. Starts fell 23 percent in February, the most since 1984, to the lowest level in almost two years.

Housing, which pushed the economy into the recession, remains the weak link in the recovery and continues to weigh on consumer spending as home prices fall. The prospect of more foreclosures and joblessness forecast to average 8.7 percent this year means any recovery in housing may take time to develop.

“Builders can’t sell homes and make a profit with so many distressed homes on the market,” said Patrick Newport, an economist at IHS Global Insight Inc. in Lexington, Massachusetts. “What’s keeping activity down now are foreclosures and falling prices.”

The Commerce Department’s report is due at 8:30 a.m. in Washington. Survey estimates ranged from 475,000 to 620,000.

Building permits increased to a 540,000 annual pace, up 1.1 percent from a 534,000 rate, according to the survey median. Permits slumped 5.2 percent in February.

Confidence among U.S. homebuilders fell in April, led by a decline in the outlook for sales. The National Association of Home Builders/Wells Fargo sentiment index declined to 16 this month from 17 in March, data from the Washington-based group showed yesterday. A measure of sales expectations for the next six months dropped to the lowest level since October.

Record Low

New-home sales fell to a record-low annual rate of 250,000 in February, the Commerce Department reported on March 23. The median price dropped to the lowest level since December 2003.

Sales of existing homes, which make up more than 90 percent of the market, rose 2.5 percent to a 5 million annual pace in March, economists surveyed by Bloomberg forecast the National Association of Realtors may report tomorrow. Existing-home sales have been gaining market share from new homes due to increased cash purchases of distressed homes.

Lending rates are rising as the broader economy recovers. The average rate on a 30-year fixed loan increased to 4.98 percent the week ended April 8, the highest since Feb. 18, according to the Mortgage Bankers Association. Borrowing costs have climbed since reaching 4.21 percent in October, the lowest since the group’s records began in 1990.

Foreclosure Forecast

Even with home seizures currently clogged in the pipeline as banks and state attorneys general struggle to agree on new guidelines, foreclosure filings will climb about 20 percent in 2011, reaching a peak for the housing crisis, RealtyTrac Inc. said Jan. 13.

CoreLogic Inc. last month estimated about 1.8 million homes were delinquent or in foreclosure, a so-called “shadow inventory” set to add to the 3.5 million existing homes already on the market.

“Activity in the housing market continued to be depressed, held down by the large inventory of foreclosed or distressed properties on the market and by weak demand,” Federal Reserve policy makers said in minutes of their March 15 policy meeting released April 5.

Homebuilders aren’t optimistic. KB Home (KBH), the Los Angeles- based homebuilder that targets first-time buyers, this month reported a bigger-than-expected loss for the quarter ended Feb. 28 as orders plunged.

Buyer Concerns

“Today’s consumers remain very cautious, whether they have concerns about home prices falling further, their job status, their ability to qualify for a loan, or general confidence in the economy,” President and Chief Executive Officer Jeffrey Mezger said during a conference call with analysts on April 5. “A sustained, broad-based housing recovery will not occur until we start to experience material job creation.”

Homebuilders have underperformed the broader stock market. The Standard & Poor’s Supercomposite Homebuilder Index has gained 1.4 percent so far this year, compared with a 3.8 percent increase for the broader S&P 500 Index.

                        Bloomberg Survey

================================================================
                           Housing  Housing Building Building
                            Starts   Starts  Permits  Permits
                            ,000’s     MOM%   ,000’s     MOM%
================================================================

Date of Release              04/19    04/19    04/19    04/19
Observation Period           March    March    March    March
----------------------------------------------------------------
Median                         520     8.6%      540     1.1%
Average                        525     9.5%      542     1.5%
High Forecast                  620    29.4%      573     7.3%
Low Forecast                   475    -0.8%      500    -6.4%
Number of Participants          77       77       58       58
Previous                       479   -22.5%      534    -5.2%
----------------------------------------------------------------
4CAST Ltd.                     540    12.7%      545     2.1%
ABN Amro Inc.                  503     5.0%      550     3.0%
Action Economics               550    14.8%      550     3.0%
Aletti Gestielle SGR           500     4.4%      540     1.1%
Ameriprise Financial Inc       505     5.4%      540     1.1%
Banesto                        520     8.6%      540     1.1%
Bank of Tokyo- Mitsubishi      529    10.4%      549     2.8%
Barclays Capital               515     7.5%     ---
BBVA                           520     8.6%      550     3.0%
BMO Capital Markets            514     7.3%      534     0.0%
BNP Paribas                    525     9.6%     ---
BofA Merrill Lynch Resear      520     8.6%      540     1.1%
Briefing.com                   500     4.4%      530    -0.8%
Capital Economics              550    14.8%     ---
CIBC World Markets             510     6.5%      520    -2.6%
Citi                           530    10.7%      550     3.0%
ClearView Economics            540    12.7%      560     4.9%
Commerzbank AG                 510     6.5%      540     1.1%
Credit Agricole CIB            510     6.5%      540     1.1%
Credit Suisse                  505     5.4%      525    -1.7%
Daiwa Securities America       500     4.4%     ---
Danske Bank                    498     4.0%      520    -2.6%
DekaBank                       540    12.7%      540     1.1%
Desjardins Group               525     9.6%      550     3.0%
Deutsche Bank Securities       525     9.6%      540     1.1%
Deutsche Postbank AG           530    10.7%     ---
Fact & Opinion Economics       560    16.9%     ---
First Trust Advisors           550    14.8%     ---
FTN Financial                  500     4.4%      540     1.1%
Goldman, Sachs & Co.           503     5.0%     ---
Helaba                         530    10.7%      550     3.0%
HSBC Markets                   550    14.8%      540     1.1%
Hugh Johnson Advisors          578    20.7%     ---
IDEAglobal                     530    10.7%      540     1.1%
IHS Global Insight             529    10.4%      555     3.9%
Informa Global Markets         525     9.6%      540     1.1%
ING Financial Markets          525     9.6%      553     3.6%
Insight Economics              525     9.6%     ---
Intesa-SanPaulo                515     7.5%      540     1.1%
J.P. Morgan Chase              520     8.6%      555     3.9%
Janney Montgomery Scott L      530    10.7%      515    -3.6%
Jefferies & Co.                540    12.7%      560     4.9%
Landesbank Berlin              525     9.6%      500    -6.4%
Landesbank BW                  530    10.7%      550     3.0%
Manulife Asset Management      515     7.5%      530    -0.8%
Maria Fiorini Ramirez Inc      510     6.5%     ---
MET Capital Advisors           500     4.4%     ---      ---
MF Global                      540    12.7%      540     1.1%
Moody’s Analytics              558    16.5%      573     7.3%
Morgan Keegan & Co.            475    -0.8%      532    -0.4%
Morgan Stanley & Co.           500     4.4%     ---
National Bank Financial        520     8.6%      540     1.1%
Natixis                        500     4.4%     ---
Nomura Securities Intl.        520     8.6%      550     3.0%
Nord/LB                        500     4.4%      530    -0.8%
OSK Group/DMG                  540    12.7%     ---
Parthenon Group                549    14.6%      572     7.1%
Pierpont Securities LLC        547    14.2%     ---
PineBridge Investments         544    13.5%     ---
PNC Bank                       550    14.8%      550     3.0%
Raymond James                  515     7.5%      535     0.2%
RBC Capital Markets            540    12.7%      530    -0.8%
RBS Securities Inc.            530    10.7%     ---
Scotia Capital                 520     8.6%      545     2.1%
Societe Generale               620    29.4%      560     4.9%
Standard Chartered             520     8.6%      540     1.1%
State Street Global Marke      541    12.9%      551     3.2%
Stone & McCarthy Research      520     8.6%      540     1.1%
TD Securities                  510     6.5%      530    -0.8%
UBS                            500     4.4%      540     1.1%
UniCredit Research             535    11.7%      565     5.8%
Union Investment               510     6.5%      545     2.1%
University of Maryland         510     6.5%      540     1.1%
Wells Fargo & Co.              561    17.1%     ---
WestLB AG                      500     4.4%      540     1.1%
Westpac Banking Co.            508     6.0%      540     1.0%
Wrightson ICAP                 510     6.5%      540     1.1%
================================================================

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

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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