Housing Starts in U.S. Unexpectedly Fall to 523,000 Pace; Permits Decline

Housings starts in the U.S. unexpectedly fell in April as flooding and tornadoes in the South shut down construction sites and homebuilders continued to struggle almost two years into an economic recovery.

Work began on 523,000 houses at an annual pace, down 11 percent from the prior month and less than the 569,000 median forecast of economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. Building permits, a sign of future construction, also decreased.

Falling home values and the prospect of more foreclosures entering the market mean home construction will be slow to gain traction. Unemployment at 9 percent and stagnant wages indicate any recovery in housing may take years to unfold.

“Job growth is essential to household formation and to keep home prices from falling further,” said Eric Green, chief market economist at TD Securities Inc. in New York, who forecast permits at 550,000. “I don’t see home sales doing much of anything” for the foreseeable future.

Another report today showed industrial production unexpectedly stalled in April, reflecting a temporary drop in auto making after supplies of parts were disrupted by the Japanese earthquake and tsunami, according to data from the Federal Reserve. Output was unchanged after a 0.7 percent gain in March, figures from the Federal Reserve showed. Manufacturing fell 0.4 percent, the report showed.

Treasuries Rise

Treasury securities rose after the reports as the slowdown in construction and manufacturing gives Federal Reserve policy makers reason to keep interest rates low. The yield on the benchmark 10-year note, which moves inversely to prices, fell to 3.12 percent at 10:09 a.m. in New York from 3.15 percent late yesterday. The Standard & Poor’s 500 Index fell 0.4 percent to 1,324.51.

Housing starts estimates ranged from 500,000 to 600,000 in the Bloomberg survey of 74 economists.

The Commerce Department revised March’s total to a 585,000 pace, up from a previously estimated 549,000. Starts reached a record low 477,000 pace in April 2009.

Building permits fell 4 percent to a 551,000 annual pace in April. They were projected to rise 0.9 percent to a 590,000 level, according to the survey median.

Construction of single-family houses decreased 5.1 percent to a 394,000 rate in April from the prior month. Work on multifamily homes, such as townhouses and apartments, fell 24 percent to an annual rate of 129,000, the weakest so far this year.

Plunge in South

Starts dropped in two of four regions, led by a 23 percent decrease in the South, the largest area. They fell 4.8 percent in the Northeast and climbed 16 percent in the Midwest and 3.7 percent in the West.

All of the weakness in starts was due to the plunge in the South, reflecting flooding on the Mississippi River that continued into May, Morgan Stanley economists David Greenlaw and Ted Wieseman wrote in a note to clients today. They forecast starts to show “little increase” this year.

Last month was the 10th wettest April since record-keeping began in 1895, with 875 preliminary reports of tornados, a record for any month, according to the National Climatic Data Center. Most wind damage occurred from the southern and central plains to the Atlantic coast.

Confidence among U.S. homebuilders was little changed in May, restrained by a drop in the sales outlook, a report from the National Association of Home Builders/Wells Fargo showed yesterday. The group’s sentiment index held at 16 for a second month. Figures less than 50 mean more respondents view conditions as poor.

Existing-Home Sales

Sales of existing homes, which make up more than 90 percent of the market, rose 2 percent to a 5.2 million annual pace in April, economists surveyed by Bloomberg forecast the National Association of Realtors may report on May 19. Purchases of previously owned houses have been increasing on demand for lower-priced distressed homes.

CoreLogic Inc. in March 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.

Toll Brothers Inc. Chief Executive Officer Douglas Yearley Jr. last week said the April through June home selling season, typically the busiest of the year, has been “disappointing” and that “people are still scared.”

Demand for new houses will remain weak into 2012, said Bill Wheat, chief financial officer of D.R. Horton Inc., who last week also projected a housing recovery will take time to develop.

Jeffrey Mezger, chief executive officer of Los Angeles- based KB Home (KBH), said he expects sales to “bump along for the next 18 months.”

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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