Builders began work on fewer U.S. homes than forecast in August, showing the industry remains flat on its back even as mortgage rates fall to record lows.
Housing starts dropped 5 percent to a three-month low 571,000 annual rate, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg News survey called for a 590,000 pace. Building permits, a proxy for future construction, unexpectedly climbed.
Foreclosures, declining prices and a lack of employment are holding back residential construction, which has typically helped spark economic rebounds from past recessions. Tighter lending rules and declining homeowner equity mean fewer buyers are able to take advantage of lower borrowing costs, highlighting the limits faced by Federal Reserve policy makers as they consider new ways to stimulate the economy when they meet today and tomorrow.
“Conditions aren’t getting much worse, but there’s also no sign of a real turnaround,” said Celia Chen, a housing economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. August starts may have been put off because of bad weather, she said. “Permits rose and that might be a sign there’s hope.”
Stocks fell amid concern international officials won’t make a decision on further Greek aid until October. The Standard & Poor’s 500 Index lost 0.2 percent to 1,202.09 at the 4 p.m. close in New York. Treasury rose, pushing down the yield on the benchmark 10-year note to 1.93 percent from 1.95 percent late yesterday.
Housing starts estimates ranged from 570,000 to 634,000 in the Bloomberg survey of 78 economists. July’s pace was revised to 601,000 from a previous estimate of 604,000. Home construction totaled 554,000 units in 2009, the lowest since record-keeping began in 1959.
The drop in construction last month was led by a 29 percent slump in the Northeast, which indicates the threat posed by Hurricane Irene may have prompted builders to pull back. The flooding caused by the storm means projects scheduled to begin in the region this month may also have been delayed, according to economists like Jennifer Lee at BMO Capital Markets in Toronto.
Fed officials tomorrow will probably announce a program for monetary easing that will do little to turn the economy around and help 14 million unemployed Americans find work, according to economists in a Bloomberg News survey. Seventy-one percent of the 42 economists surveyed forecast policy makers will agree to replace short-term Treasuries with longer-term debt in a bid to reduce borrowing costs even more.
The average rate on a fixed 30-year mortgage loan decreased to 4.09 percent last week, the lowest since record keeping began in 1972, according to figures from Freddie Mac. The rates are typically based on the yield of the benchmark 10-year Treasury note, one of the borrowing costs the central bank would be aiming to lower in a so-called “Operation Twist.”
Fed Chairman Ben S. Bernanke warned last month during a speech in Jackson Hole, Wyoming, that the central bank alone can’t lift sagging home prices or mitigate a wave of home foreclosures.
Today’s report showed permits rose 3.2 percent to a 620,000 annual rate in August, the highest this year and a sign construction may stabilize. Permits climbed in three of four regions, led by an 11.3 percent jump in the West. They climbed 6.3 percent in the Midwest and 3.3 percent in the Northeast.
New construction of single-family houses decreased 1.4 percent to a 417,000 rate in August from the prior month. Work on multifamily homes, such as townhouses and apartments, slumped 13.5 percent to an annual rate of 154,000.
Starts dropped in two of four regions, with the South joining the Northeast in decline. They climbed in the Midwest and West.
Declining stock values have made households less wealthy, helping push down confidence and discouraging big-ticket purchases. Unemployment above 9 percent also leaves fewer Americans able to take advantage of cheaper borrowing costs.
“With all of the economic turmoil, both domestic and international, there’s not much that points to an improving housing market at any point in the near future,” Ara Hovnanian, chairman and chief executive officer of Hovnanian Enterprises Inc., said in call with analysts on Sept. 8. “Our internal business plan assumes market conditions do not improve.”
Confidence among U.S. homebuilders dropped in September to a three-month low as prospective buyer traffic, sales and purchase expectations declined. The National Association of Home Builders/Wells Fargo sentiment index decreased to 14, figures showed yesterday. Readings less than 50 mean more respondents said conditions were poor.
“High unemployment and volatile financial markets continue to undermine consumer confidence in spite of low mortgage rates,” Patricia Bedient, chief financial officer at Weyerhaeuser Co., said Sept. 15 at a forest products conference. Federal Way, Washington-based Weyerhaeuser owns about 6 million acres of U.S. timberland. “New home markets softened noticeably four to six weeks ago in response to weak employment data and political discord in Washington.”