Housing Starts in U.S. Probably Climbed in May on Lower Rates

Housing Starts in U.S. Probably Climbed in May on Lower Rates
A Toll Brothers Inc. home under construction, in Randolph, New Jersey, on June 14, 2012. Photographer: Emile Wamsteker/Bloomberg

Builders in the U.S. broke ground on more homes in May as the real estate market showed signs of sustaining recent gains, economists said before a report today.

Starts climbed 0.7 percent last month to a 722,000 annual pace, the highest since October 2008, according to the median estimate of 76 economists surveyed by Bloomberg News. Building permits, a proxy for future construction, rose 1 percent to a 730,000 rate, the survey showed.

The combination of lower prices and record-low mortgage rates is underpinning demand and encouraging some builders to take on new projects. At the same time, competition from cheaper previously owned properties and stricter lending rules remain hurdles for an industry that’s been the weakest link for the economic expansion.

“Homebuilding is slowly climbing out of the very deep hole it fell into during the housing bust, but most of the strength is in multifamily housing rather than in single-family housing,” said Steven Wood, principal economist at Insight Economics LLC in Danville, California.

The Federal Open Market Committee, which sets the course of central bank policy, begins a two-day meeting today to decide whether more monetary stimulus is needed to boost growth as the labor market stumbles and risks from Europe’s sovereign debt crisis rise.

The housing starts figures are due from the Commerce Department at 8:30 a.m. in Washington. Estimates in the Bloomberg survey for May ranged from 685,000 to 750,000.

Builder Confidence

A report yesterday showed confidence among U.S. homebuilders climbed in June to a five-year high. The Washington-based National Association of Home Builders/Wells Fargo sentiment index rose by 1 point to 29, the highest since May 2007.

Less expensive homes, low mortgage rates and enough of an increase in household income drove housing affordability to an all-time high in the first quarter, according to the National Association of Realtors.

The average rate on a 30-year, fixed-rate mortgage reached a record low of 3.67 percent in the first week of June, according to Freddie Mac.

The recovery helps explain gains in builder shares. The Standard & Poor’s Supercomposite Homebuilding Index, which includes D.R. Horton Inc. and PulteGroup Inc., has climbed 33 percent this year, outpacing a 6.9 percent gain in the broader S&P 500.

Household Formation

Another reason for optimism on the outlook for construction is that Americans are forming households faster than new homes are being built, said Douglas Yearley, chief executive officer of Toll Brothers Inc., a luxury homebuilder based in Horsham, Pennsylvania.

“There is huge pent-up demand that has built over the last four years from this imbalance,” Yearley said at a June 14 conference. “It’s been seven years since this all began to turn down and you have people that are just ready to move on with their lives, take advantage of great interest rates.”

At the same time, three years after the end of the recession, a stronger housing recovery remains elusive. More distressed properties are going on the market, adding to inventory and pushing down prices.

Foreclosure starts grew in May on an annual basis for the first time since January 2010, after the largest U.S. loan servicers settled with states over faulty documentation, according to a report last week from RealtyTrac Inc., a real estate data provider in Irvine, California. Home seizures plunged 18 percent from a year earlier, the report also showed, a sign that banks are turning to repossession alternatives, RealtyTrac Inc. said today.

Weak job gains and stock market volatility also have consumers apprehensive about taking on debt.

“Our forecast is still for growth but we’re being conservative about it,” said Doug Duncan, chief economist at Washington-based Fannie Mae. “This will definitely be a year where we’ll see growth in the housing market.”

                         Bloomberg Table

                           Housing Building
                            Starts  Permits
                            ,000’s   ,000’s

Date of Release              06/19    06/19
Observation Period             May      May
Median                         722      730
Average                        721      730
High Forecast                  750      770
Low Forecast                   685      690
Number of Participants          76       53
Previous                       717      723
4CAST                          700      690
ABN Amro                       719     ---
Action Economics               725      730
Aletti Gestielle               710      730
Ameriprise Financial           720      730
Analytical Synthesis           726      736
Banca Aletti                   715      720
Bantleon Bank AG               730      740
Barclays                       730     ---
BBVA                           720      725
BMO Capital Markets            733      737
BNP Paribas                    700     ---
BofA Merrill Lynch             730      710
Briefing.com                   710      720
Capital Economics              725     ---
CIBC World Markets             730      715
Citi                           720      740
ClearView Economics            710      720
Comerica                       725     ---
Commerzbank AG                 720      720
Credit Agricole CIB            720      725
Credit Suisse                  725      735
Daiwa Securities America       710     ---
Danske Bank                    721      723
DekaBank                       735      730
Desjardins Group               710      725
Deutsche Bank Securities       710      725
Deutsche Postbank AG           730     ---
Exane                          730     ---
Fact & Opinion Economics       730     ---
First Trust Advisors           732     ---
FTN Financial                  730      735
Goldman, Sachs & Co.           739     ---
Helaba                         735      725
High Frequency Economics       725      750
HSBC Markets                   685      715
Hugh Johnson Advisors          720      720
IDEAglobal                     730      735
IHS Global Insight             710      736
Informa Global Markets         720      705
ING Financial Markets          719      727
Intesa Sanpaulo                695      700
J.P. Morgan Chase              715      760
Janney Montgomery Scott        713      740
John Hancock Financial         728      743
Landesbank Berlin              700      710
Landesbank BW                  725      740
Maria Fiorini Ramirez          720     ---
Market Securities              730     ---
MET Capital Advisors           719     ---
Moody’s Analytics              724      740
National Bank Financial        722      728
Natixis                        710     ---
Nomura Securities              710      740
Nord/LB                        720      730
OSK Group/DMG                  703     ---
Parthenon Group                733      753
Pierpont Securities            720     ---
PineBridge Investments         724     ---
PNC Bank                       725      740
Raiffeisenbank International   750      770
RBC Capital Markets            705     ---
RBS Securities                 720     ---
Scotiabank                     725     ---
SMBC Nikko Securities          730      730
Societe Generale               750      770
Standard Chartered             720      728
Stone & McCarthy Research      715      720
TD Securities                  730      725
UBS                            725     ---
UniCredit Research             750      720
Union Investment               725      730
University of Maryland         725      730
Wells Fargo & Co.              715     ---
Westpac Banking Co.            717      741
Wrightson ICAP                 725      730
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