U.S. Housing Starts Probably Rose in June as Industry Struggled to Rebound

Housing starts in the U.S. probably rose in June for a second month as the industry struggled to recover in the face of foreclosures and rising unemployment, economists said before a report today.

Construction began on 575,000 houses at an annual rate, up 2.7 percent from May, according to the median projection of economists surveyed by Bloomberg News. Building permits, an indicator of future projects, fell 2.3 percent to a 595,000 rate, the survey showed.

Declining home values and delays in processing foreclosures mean it may take years to clear the market of distressed properties, a sign a sustained gain in homebuilding will take time to unfold. Federal Reserve Chairman Ben S. Bernanke last week said housing remains “depressed” due in part to the limited job and income growth that is also restraining the broader economy.

“When you’re a builder and you’re fighting against cheaper, foreclosed homes, you have to be cautious,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “The housing market is one of the weaker links in the economy.”

The Commerce Department will report the figures at 8:30 a.m. in Washington. Estimates of the 71 economists surveyed by Bloomberg ranged from 500,000 to 610,000.

The median projection for the annual pace of housing starts in June is less than the 587,000 begun last year, the second- fewest on record. Home construction totaled 554,000 units in 2009, the lowest since record-keeping began in 1959. Starts reached a peak of 2.07 million in 2005.

Foreclosure Pipeline

With an overhang of distressed homes making their way through the foreclosure pipeline, more cash investors are looking for bargain, foreclosed properties and eschewing new houses. At the same time, unemployment above 9 percent and strict lending standards make it harder for most Americans to take advantage of mortgage rates that are close to a record low.

Purchases of previously owned homes, which make up about 95 percent of the market, climbed 1.9 percent in June from May’s six-month low to a 4.9 million annual rate, according to the median projection of economists surveyed by Bloomberg News before a National Association of Realtors’ report tomorrow.

Purchases of existing homes slumped to a 13-year low of 4.91 million in 2010 after reaching a record 7.08 million in 2005, during the housing boom.

‘Ominous Shadow’

Lender delays in processing home-loan defaults will push as many as 1 million foreclosure filings from this year into 2012 or beyond, casting an “ominous shadow” on the housing market, RealtyTrac Inc., a housing data provider, said last week. A clogged foreclosure pipeline may prevent real estate prices from finding a bottom as the housing slump extends into a sixth year.

With home prices continuing to drop and more distressed properties making their way to the market, builders remain reluctant to take on new projects.

Instead, demand for apartments and other multifamily housing that make up about a quarter of starts may be starting to increase as more Americans become renters.

The S&P/Case-Shiller index of property values in 20 cities fell 4 percent in April from a year earlier, the biggest drop since November 2009, the group said last month. The index was down 33 percent from its peak in July 2006.

Bernanke on Housing

“The high proportion of distressed sales are keeping downward pressure on house prices,” Bernanke said July 13 in testimony to the House Financial Services Committee. “The demand for homes has been depressed by many of the same factors that have held down consumer spending more generally, including the slowness of the recovery in jobs and income as well as poor consumer sentiment.”

A report yesterday showed homebuilder confidence improved from a nine-month low. The National Association of Home Builders/Wells Fargo sentiment index rose to 15 this month from 13 in June. Readings lower than 50 mean more respondents view conditions as poor.

Homebuilder shares have lagged behind the broader market this year. The Standard & Poor’s Homebuilder Supercomposite Index has dropped 5.8 percent through yesterday, compared with a 3.8 percent gain for the S&P 500 Index. (SPX)

Some builders see signs of stabilization. Miami-based Lennar Corp. (LEN), the third-largest U.S. homebuilder by revenue, last month reported second-quarter profits that beat analysts’ estimates on rising earnings at its distressed-investing unit.

“It is beginning to feel like the worst days of the housing market are getting behind us,” said Stuart Miller, chief executive officer of Lennar, on a June 23 conference call. “Stabilization and recovery will continue to be a slow and rocky process.”

                        Bloomberg Survey

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

Date of Release              07/19    07/19    07/19    07/19
Observation Period            June     June     June     June
----------------------------------------------------------------
Median                         575     2.7%      595    -2.3%
Average                        573     2.3%      595    -2.2%
High Forecast                  610     8.9%      645     5.9%
Low Forecast                   500   -10.7%      560    -8.1%
Number of Participants          71       71       51       51
Previous                       560     3.5%      609     8.2%
----------------------------------------------------------------
4CAST                          585     4.5%      580    -4.8%
ABN Amro                       574     2.5%     ---
Action Economics               550    -1.8%      570    -6.4%
Aletti Gestielle               595     6.3%      615     1.0%
Ameriprise Financial           585     4.5%      605    -0.7%
Banesto                        550    -1.8%      595    -2.3%
Bantleon Bank AG               580     3.6%      590    -3.1%
Barclays Capital               580     3.6%     ---
BBVA                           567     1.3%      614     0.8%
BMO Capital Markets            578     3.2%      600    -1.5%
BNP Paribas                    580     3.6%     ---
BofA Merrill Lynch             580     3.6%      590    -3.1%
Briefing.com                   570     1.8%      600    -1.5%
Capital Economics              610     8.9%     ---
CIBC World Markets             566     1.1%      615     1.0%
Citi                           575     2.7%      585    -3.9%
Commerzbank AG                 575     2.7%      580    -4.8%
Credit Agricole CIB            568     1.4%      609     0.0%
Credit Suisse                  565     0.9%      575    -5.6%
Danske Bank                    590     5.4%      590    -3.1%
DekaBank                       580     3.6%      600    -1.5%
Desjardins Group               580     3.6%      590    -3.1%
Deutsche Bank Securities       560     0.0%      600    -1.5%
Deutsche Postbank AG           585     4.5%     ---
Exane                          575     2.7%     ---
First Trust Advisors           575     2.7%     ---
FTN Financial                  565     0.9%      615     1.0%
Goldman, Sachs & Co.           560     0.0%     ---
Helaba                         560     0.0%      590    -3.1%
High Frequency Economics       560     0.0%      570    -6.4%
HSBC Markets                   575     2.7%      575    -5.6%
Hugh Johnson Advisors          500   -10.7%     ---
IDEAglobal                     575     2.7%      600    -1.5%
IHS Global Insight             572     2.1%      603    -1.0%
Informa Global Markets         570     1.8%      575    -5.6%
ING Financial Markets          595     6.3%      590    -3.1%
Insight Economics              570     1.8%     ---
Intesa-SanPaulo                575     2.7%      600    -1.5%
J.P. Morgan Chase              560     0.0%      600    -1.5%
Janney Montgomery Scott        560     0.0%      595    -2.3%
Jefferies & Co.                550    -1.8%      570    -6.4%
Landesbank Berlin              570     1.8%      560    -8.1%
Landesbank BW                  585     4.5%      595    -2.3%
Maria Fiorini Ramirez          575     2.7%     ---
MF Global                      560     0.0%      575    -5.6%
Moody’s Analytics              563     0.5%      594    -2.5%
Morgan Keegan & Co.            574     2.5%      599    -1.6%
Morgan Stanley & Co.           565     0.9%     ---
Natixis                        571     2.0%     ---
Nomura Securities              595     6.3%      616     1.2%
OSK Group/DMG                  550    -1.8%     ---
Parthenon Group                584     4.3%      612     0.5%
Pierpont Securities            585     4.5%     ---
PineBridge Investments         566     1.0%     ---
PNC Bank                       590     5.4%     ---
Raymond James                  580     3.6%      615     1.0%
RBC Capital Markets            570     1.8%     ---
RBS Securities                 575     2.7%     ---
Scotia Capital                 578     3.2%      590    -3.1%
Societe Generale               600     7.1%      645     5.9%
Standard Chartered             580     3.6%      610     0.2%
State Street Global Markets    577     3.0%      604    -0.8%
Stone & McCarthy Research      580     3.6%      590    -3.1%
TD Securities                  585     4.5%      610     0.2%
UBS                            575     2.7%      595    -2.3%
Union Investment               560     0.0%      600    -1.5%
University of Maryland         560     0.0%      580    -4.8%
Wells Fargo & Co.              585     4.5%     ---
WestLB AG                      575     2.7%      600    -1.5%
Westpac Banking Co.            560     0.0%      594    -2.5%
Wrightson ICAP                 580     3.6%      600    -1.5%
================================================================

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.