Housing Starts in U.S. Weaken as Construction Stagnates; Permits Decline

Builders began work on fewer homes in July, indicating residential real estate is failing to contribute to U.S. growth two years into an economic recovery.

Housing starts fell 1.5 percent to a 604,000 annual rate, in line with the median forecast of economists surveyed by Bloomberg News, from June’s 613,000 pace that was less than previously estimated, Commerce Department figures showed today in Washington. Building permits, a proxy for future construction, also dropped.

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.

“The housing market is still very depressed,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. “Demand for new homes is extremely weak and the foreclosure pipeline is still high. It’s because of the weak economy, weak job growth and falling home prices.”

Prices of goods imported into the U.S. rose in July, led by gains in costs of fuel, industrial supplies and clothing, another report showed. The 0.3 percent gain in the import-price index followed a revised 0.6 percent drop in June, Labor Department figures showed.

Shares Fall

Stock-index futures held earlier losses after the report on growing concern over a global growth slowdown after Germany said its economy almost stalled in the second quarter. The contract on the Standard & Poor’s 500 Index fell 1.3 percent to 1,183.3 at 8:47 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 2.27 percent from 2.31 percent late yesterday.

The median forecast in a Bloomberg News survey of 77 economists called for a 600,000 annual pace of starts. projections ranged from 570,000 to 650,000. The prior month was revised from 629,000 previously estimated.

Housing starts so far this year are running on a 566,000 pace for all of 2011, according to Bloomberg calculations. The result 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

Permits decreased to a 597,000 annual pace. They were projected to fall to a 605,000 annual rate from 617,000 the prior month, according to the survey median.

Construction of single-family houses decreased 4.9 percent to a 425,000 rate in July from the prior month, and permits rose 0.5 percent.

Work on multi-family homes, such as townhouses and apartment builders, climbed 7.8 percent to an annual rate of 179,000.

The regional breakdown saw huge swings among two of the four areas. Starts plunged 38 percent in the Midwest and jumped 35 percent in the Northeast. They rose 5.6 percent in the South and fell 3 percent in the West.

There were 413,000 units under construction last month, the fewest since records began in 1970.

Demand Drops

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 fell in 109 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.”

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.

Credit Tight

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.”

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.

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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