Homebuilding in U.S. Probably Fell as Sales Dropped, Foreclosures Climbed

Builders probably began work on fewer houses in July, showing residential real estate is failing to contribute to U.S. growth two years into an economic recovery, economists said before a report today.

Housing starts fell 4.6 percent to a 600,000 annual rate, according to the median estimate of 77 economists surveyed by Bloomberg News. Another report may show factory production rose as auto making began to bounce back from the disaster in Japan.

Falling sales, foreclosures and a lack of jobs may keep delaying a rebound in homebuilding, depriving the world’s largest economy of a source of strength seen in the early stages of past recoveries. Concern over housing is prompting banks to maintain strict mortgage lending rules and was one reason the Federal Reserve said it would hold borrowing costs at a record low until at least mid-2013.

“Housing is going nowhere fast,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Demand is just really not there, and there’s an overwhelming supply of unsold homes.”

The homebuilding report is due from the Commerce Department at 8:30 a.m. in Washington. Survey estimates ranged from 570,000 to 650,000, after a 629,000 pace in June that was the highest level in five months.

The median projection compares with last year’s tally of 587,000 starts, the second-fewest on record. Home construction totaled 554,000 units in 2009, the lowest since record-keeping began in 1959. During the past decade’s housing boom, starts reached a peak of 2.07 million in 2005.

Fewer Permits

Building permits, a proxy for future construction, may have fallen 1.9 percent to a 605,000 annual rate from 617,000 in June, according to the Bloomberg survey.

Labor Department figures, also due at 8:30 a.m., may show the import-price index fell 0.1 percent last month, the second straight decline as commodity prices dropped, according to the Bloomberg News survey median.

At 9:15 a.m., the Fed may report industrial production grew 0.5 percent in July after a 0.2 percent gain in June, according to the survey median. Economists’ forecasts ranged from 0.1 percent to 1 percent. Manufacturing, included in the industrial output report, accounts for about 12 percent of the economy.

The output figures may also reflect a jump in utility use as temperatures soared across the U.S., with July records in Texas and Oklahoma, according to the National Climatic Data Center. Last month was the fourth-warmest July in 117 years, it said.

Manufacturing ‘Cooling’

“Industrial production improved a bit after supply disruptions eased and it got a boost from utilities last month,” said Shapiro. “But the manufacturing sector is cooling from an unsustainably strong pace as economies around the world are slowing. We have a very weak economy.”

Builders have little incentive to take on more work. Combined sales of new and previously owned homes dropped in June to the lowest level of the year, according to reports from the Commerce Department and the National Association of Realtors.

The median price of a single-family house dropped in 109 out of 150 metropolitan areas in the second quarter as foreclosures devalued real estate, the Realtors group said in a report on Aug. 10.

“The housing sector remains depressed,” the Federal Open Market Committee said in a statement after its meeting on Aug. 9. “Economic growth so far this year has been considerably slower than the Committee had expected.”

Lending Rules

Bank-lending standards on home mortgages were little changed for both prime and non-traditional loans during the second quarter, the Fed said yesterday in its survey of senior loan officers. In addition, about three-quarters of banks said they expected the pace of mortgage lending “to remain at about the same level through the rest of 2011,” the Fed said.

The banks cited “reduced or unchanged demand from creditworthy borrowers” as a factor. They also pointed to “unfavorable or uncertain forecasts for the broad economy and for house prices.”

While concerns that the expansion may falter sparked stock market losses, homebuilders have fared worse. The Standard & Poor’s Supercomposite Homebuilder Index plunged 21 percent since the end of June through yesterday, compared with a 8.8 percent drop in the broader S&P 500 Index. (SPX)

D.R. Horton Inc., the second-largest homebuilder by revenue, reported third-quarter earnings that beat analyst estimates as cost cuts helped the Fort Worth, Texas-based company to cushion a decline in revenue.

“Nothing’s really strong out there, and I would reiterate that most of our markets continue to still be soft, softer, and softest,” Chief Executive Officer Donald Tomnitz said on a conference call with investors on July 28. “I would anticipate that ‘12 will be better than ‘11 but I don’t expect it to be significantly better,” he said.

A measure of builder confidence held at 15 in August, according to a report yesterday from the National Association of Home Builders/Wells Fargo. Readings below 50 mean more respondents said conditions were poor.

                      Bloomberg Survey

================================================================
                           Housing Building   Import     Ind.
                            Starts  Permits   Prices    Prod.
                            ,000’s   ,000’s     MOM%     MOM%
================================================================

Date of Release              08/16    08/16    08/16    08/16
Observation Period            July     July     July     July
----------------------------------------------------------------
Median                         600      605    -0.1%     0.5%
Average                        603      606    -0.1%     0.5%
High Forecast                  650      655     0.4%     1.0%
Low Forecast                   570      575    -1.8%     0.1%
Number of Participants          77       51       54       85
Previous                       629      617    -0.5%     0.2%
----------------------------------------------------------------
4CAST                          590      605    -0.5%     0.6%
ABN Amro                       615     ---      ---      0.4%
Action Economics               590      595    -0.5%     0.5%
Aletti Gestielle               600      610     ---      0.4%
Ameriprise Financial           608      605    -0.3%     0.3%
Banesto                       ---      ---      ---      0.6%
Bantleon Bank AG               600      600    -0.1%     0.4%
Barclays Capital               600     ---      0.1%     0.3%
Bayerische Landesbank         ---      ---      ---      0.6%
BBVA                           610      609     0.1%     0.1%
BMO Capital Markets            600     ---      ---      0.5%
BNP Paribas                    600     ---     -0.1%     0.3%
BofA Merrill Lynch             620      605     0.4%     0.5%
Briefing.com                   575      600     ---      0.3%
Capital Economics              620     ---      ---      0.5%
CIBC World Markets             594      600     ---      0.5%
Citi                           580      600    -0.1%     0.8%
ClearView Economics            600      610    -0.4%     0.3%
Comerica Inc                   595     ---      0.2%     1.0%
Commerzbank AG                 575      600     ---      0.2%
Credit Agricole CIB            600      606     ---      0.6%
Credit Suisse                  580     ---      0.4%     1.0%
Daiwa Securities America       580     ---      ---      0.5%
Danske Bank                    609      598     ---      0.4%
DekaBank                       600      610    -0.3%     0.7%
Desjardins Group               590      600    -0.3%     0.3%
Deutsche Bank Securities       620      620     0.0%     0.5%
Deutsche Postbank AG           615     ---      0.3%     0.2%
DZ Bank                        600      608     0.1%     0.6%
Exane                          600     ---      ---      0.4%
Fact & Opinion Economics       600     ---     -0.6%     0.3%
First Trust Advisors           580     ---     -0.1%     0.5%
FTN Financial                  595      590     ---      0.4%
Goldman, Sachs & Co.           598     ---      ---      0.5%
Helaba                         600      600     ---      0.6%
HSBC Markets                   625      620    -1.8%     0.6%
Hugh Johnson Advisors          650     ---      0.4%     0.5%
IDEAglobal                     610      605    -0.3%     0.3%
IHS Global Insight             605      634     ---      0.8%
Informa Global Markets         595      600    -0.3%     0.5%
ING Financial Markets         ---      ---     -0.3%     0.5%
Insight Economics              600     ---     -0.5%     0.7%
Intesa-SanPaulo                615      605     0.0%     0.5%
J.P. Morgan Chase              590      600    -0.1%     0.9%
Janney Montgomery Scott        620      606     0.0%     0.2%
Jefferies & Co.                580      575    -0.2%     0.7%
Landesbank Berlin              570      590     0.0%     0.7%
Landesbank BW                  615      610     ---      0.4%
Manulife Asset Management      615      610    -0.5%     0.2%
Maria Fiorini Ramirez          600     ---      0.0%     0.7%
Market Securities             ---      ---      ---      0.5%
MET Capital Advisors           609     ---      ---      0.5%
MF Global                      585      590    -0.4%     0.9%
Mizuho Securities              604     ---     -0.3%     0.1%
Moody’s Analytics              619      611     0.1%     0.6%
Morgan Keegan & Co.            625      625     0.1%     0.4%
Morgan Stanley & Co.           600     ---      ---      1.0%
National Bank Financial        615      610     ---      0.6%
Natixis                        640     ---     -0.2%     0.3%
Newedge                       ---      ---      ---      0.6%
Nomura Securities              574      602     ---      0.6%
Nord/LB                        610      610    -0.5%     0.3%
OSK Group/DMG                  585     ---      ---      0.8%
Parthenon Group                620      606    -0.2%     0.5%
Pierpont Securities            630     ---      ---      0.9%
PineBridge Investments        ---      ---      0.2%     0.3%
PNC Bank                       590     ---      ---      0.4%
Raiffeisenbank International  ---      ---      0.0%     0.3%
Raymond James                  610      600     ---      0.8%
RBC Capital Markets            590     ---      0.1%     0.6%
RBS Securities                 600     ---      ---      0.6%
Scotia Capital                 600      600     ---      0.3%
SMBC Nikko Securities          650      625     0.1%     0.3%
Societe Generale               625      655    -0.8%     0.8%
Standard Chartered             600      595    -0.3%     0.4%
State Street Global Markets    608      607    -0.3%     0.5%
Stone & McCarthy Research      590      605     0.0%     0.3%
TD Securities                  590      595     0.2%     0.1%
UBS                            595      615     0.0%     1.0%
UniCredit Research            ---      ---      ---      0.6%
University of Maryland         610      610    -0.4%     0.3%
Wells Fargo & Co.              607     ---      0.2%     0.4%
WestLB AG                      612      607    -0.2%     0.4%
Westpac Banking Co.            598      602     0.2%     0.4%
Wrightson ICAP                 600      605    -0.2%     0.9%
================================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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