Housing Starts in U.S. Declined 0.3% in October

Builders broke ground on more homes than forecast in October and construction permits climbed to the highest level since March 2010, signs that housing may become less of a laggard in the third year of the U.S. recovery.

Starts decreased 0.3 percent to a 628,000 annual rate from September’s 630,000 pace that was slower than previously reported, Commerce Department figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News called for a drop to 610,000. Building permits, a proxy for future construction, increased 10.9 percent.

Mortgage rates near a record low and a reduced stock of new properties may benefit builders like D.R. Horton Inc. At the same time, foreclosures are holding down property values as unemployment at 9 percent restrains sales, helping explain why the Federal Reserve and the Obama administration are looking for ways to jumpstart housing.

“We’re still at the bottom but gently beginning to move up in the right direction,” said Eric Green, chief market economist at TD Securities Inc. in New York, who projected 625,000 October starts. It may be late 2012 before “we reach the point that housing construction is going to contribute meaningfully to growth,” he said.

Fewer Americans than forecast filed first-time claims for unemployment insurance payments last week, an indication the job market may be gaining traction, a Labor Department report showed today.

Jobless Claims

Applications for jobless benefits decreased 5,000 in the week ended Nov. 12 to 388,000, the lowest level since April. Economists forecast 395,000 claims, according to the median estimate in a Bloomberg survey. The number of people on unemployment benefit rolls fell to a three-year low.

Stock-index futures erased losses after the figures. The contract on the Standard & Poor’s 500 Index expiring next month rose less than 0.1 percent to 1,231.4 at 8:43 a.m. in New York.

Starts were forecast to decline from a previously reported 658,000 annual rate. Estimates of the 82 economists surveyed by Bloomberg ranged from 575,000 to 640,000.

The October results compare 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.

Permits increased to a 653,000 annual pace in October. They were projected to rise to a 603,000 rate from 589,000 the prior month, according to the survey median. Applications for the construction of single-family homes rose 5.1 percent to the highest level this year, and permits for multifamily units jumped 24.4 percent.

Single-Family Homes

New construction of single-family houses climbed 3.9 percent to a three-month high 430,000 rate from the prior month.

Work on multifamily homes, such as townhouses and apartment buildings, decreased 8.3 percent to an annual rate of 198,000 after surging 35 percent a month earlier.

Recent gains in homebuilding have been led by a jump in construction of apartments and other multifamily dwellings as foreclosures turned more Americans into renters from buyers.

Apartment owners are benefiting as distressed properties and stricter mortgage standards erode the confidence of would-be homebuyers. Multifamily vacancies fell to a five-year low in the third quarter, spurring landlords to increase rents, according to data from property-research company Reis Inc. released in October.

Jump in Northeast

Three of four regions had an October increase in starts, led by a 17.2 percent surge in the Northeast and a 9.7 percent gain in the Midwest. Starts fell 16.5 percent in the West.

Home purchases of new houses rose 5.7 percent in September as discounted prices lured buyers in some regions. At the same time, builders face competition from cheaper previously owned homes and foreclosed properties.

D.R. Horton, the second-largest homebuilder by revenue, reported quarterly earnings that missed analyst estimates. The Fort Worth, Texas-based company has been lowering costs and shifting its focus to move-up buyers as demand remains weak.

“We’re still a bit cautious about the overall environment,” Chief Financial Officer William Wheat said on a conference call with investors on Nov. 11. “It is still a challenging homebuilding environment out there.”

Beazer Homes, an Atlanta-based homebuilder, this week reported a loss in the quarter ended Sept. 30, and cited “many challenges facing the industry.”

The Fed’s efforts include a commitment to keep the benchmark interest rate near zero until at least 2013. The central bank in September decided to reinvest maturing housing debt into new mortgage-backed securities instead of Treasuries.

Some policy efforts may be starting to bear fruit. A report yesterday showed the National Association of Home Builders/Wells Fargo index of builder confidence rose to 20 in November, the highest level since May 2010. Readings below 50 mean more respondents said conditions were poor.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net; Timothy R. Homan in Washington at thoman1@bloomberg.net

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

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