Builders began work on more homes than forecast in January, reflecting a surge in multifamily units.
Housing starts climbed 15 percent to a 596,000 annual rate, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg News survey called for a 539,000 rate. Work started on 78 percent more dwellings with two or more units, overshadowing a drop in single-family houses that indicates the housing market continues to struggle.
As unemployment hovers around 9 percent and lenders continue to foreclose on delinquent owners, homebuilders must compete with a surfeit of unsold properties. Companies like Hovnanian Enterprises Inc. anticipate falling prices and low borrowing costs will lift homebuyer traffic later this year.
“Housing activity is going to remain at depressed levels this year,” said Ellen Zentner, a senior macro economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York who forecast a rate of 555,000. “We’ve got home prices that have taken another leg down and will probably stay down through midyear.”
Wholesale costs in the U.S. increased for a seventh consecutive month in January, led by higher prices for fuel, a report from the Labor Department also showed today. The producer price index rose 0.8 percent. The so-called core measure, which excludes volatile food and energy costs, rose 0.5 percent, the biggest rise since October 2008.
Stock-index futures held earlier gains following the reports and Treasury securities were little changed. The contract on the Standard & Poor’s Index maturing in March rose 0.4 percent to 1,331.1 at 8:47 a.m. in New York. The yield on the benchmark 10-year note was 3.61 percent, the same as late yesterday.
Estimates of 76 economists in the Bloomberg News survey ranged from 475,000 to 590,000. December’s pace was revised to 520,000 from a previous estimate of 529,000.
Building permits, an indicator for future construction, dropped 10 percent to a 562,000 annual pace in January. Permits had climbed 15 percent in December after builders rushed to complete applications before new building codes went into effect this year.
Construction of single-family houses decreased 1 percent to a 413,000 rate in January from the prior month, the fewest since May 2009. Work on multifamily homes, such as townhouses and apartments, jumped to a 183,000 pace, the most since February 2009, from 103,000 rate in December.
Starts rose in three of four regions last month, led by a 42 percent jump in the Northeast. Work began on 9.7 percent fewer houses in the West.
While other parts of the economy have rebounded from the recession, the housing market must improve “to ensure a complete, stable, and sustainable recovery,” according to Federal Reserve Governor Sarah Bloom Raskin, who last week urged mortgage companies and investors to help revive housing.
“The government can only do so much, and relevant private sector actors need to think beyond their bottom line and focus on how their firms’ actions are or are not contributing to the economic recovery,” Raskin said Feb. 11 at a mortgage conference in Park City, Utah.
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Housing prices may face “more downward pressure” because of “a pipeline full of distressed properties,” she said, noting too that “the persistent high rate of unemployment is further depressing housing demand, creating uncertainty about housing prices, and impeding that robust recovery in the housing sector that we generally see.”
With high joblessness and bank seizures poised to resume after a slowdown, foreclosure filings will climb about 20 percent in 2011, reaching a peak for the housing crisis, RealtyTrac Inc. said last month. Those foreclosures may further discourage construction and hurt home values.
Developers’ confidence stagnated in February, reflecting competition from foreclosed properties and a lack of credit. The National Association of Home Builders/Wells Fargo sentiment index held at 16, the same as the past four months, figures showed yesterday. Readings less than 50 mean more respondents said conditions were poor.
There were 190,000 new houses on the market at the end of December, the fewest since January 1968, the Commerce Department said Jan. 26. Home values in the U.S. fell during the fourth quarter because potential buyers anticipated prices would decline further. The median price of a single-family home dropped from a year earlier in 71 of 152 metropolitan areas tracked by the National Association of Realtors, the group said last week.
“Affordability is the least of the problems right now,” Ara Hovnanian, chief executive officer of New Jersey’s largest homebuilder, said this week on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “The issue is unemployment, fear and lack of confidence, and that’s what’s got to turn right now.”
Hovnanian Enterprises Inc. on Dec. 22 reported a fourth-quarter loss bigger than analysts expected as revenue fell 19 percent. The company has cut about 75 percent of its workforce in the past four years, Hovnanian said during the interview. He said he expects the industry “to start building some momentum” in the second quarter.