Homebuilding in U.S. Probably Fell as Sales Dropped, Foreclosures Climbed
Builders probably began work on fewer houses in July, showing residential real estate is failing to contribute to U.S. growth two years into an economic recovery, economists said before a report today.
Housing starts fell 4.6 percent to a 600,000 annual rate, according to the median estimate of 77 economists surveyed by Bloomberg News. Another report may show factory production rose as auto making began to bounce back from the disaster in Japan.
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.
“Housing is going nowhere fast,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Demand is just really not there, and there’s an overwhelming supply of unsold homes.”
The homebuilding report is due from the Commerce Department at 8:30 a.m. in Washington. Survey estimates ranged from 570,000 to 650,000, after a 629,000 pace in June that was the highest level in five months.
The median projection 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
Building permits, a proxy for future construction, may have fallen 1.9 percent to a 605,000 annual rate from 617,000 in June, according to the Bloomberg survey.
Labor Department figures, also due at 8:30 a.m., may show the import-price index fell 0.1 percent last month, the second straight decline as commodity prices dropped, according to the Bloomberg News survey median.
At 9:15 a.m., the Fed may report industrial production grew 0.5 percent in July after a 0.2 percent gain in June, according to the survey median. Economists’ forecasts ranged from 0.1 percent to 1 percent. Manufacturing, included in the industrial output report, accounts for about 12 percent of the economy.
The output figures may also reflect a jump in utility use as temperatures soared across the U.S., with July records in Texas and Oklahoma, according to the National Climatic Data Center. Last month was the fourth-warmest July in 117 years, it said.
Manufacturing ‘Cooling’
“Industrial production improved a bit after supply disruptions eased and it got a boost from utilities last month,” said Shapiro. “But the manufacturing sector is cooling from an unsustainably strong pace as economies around the world are slowing. We have a very weak economy.”
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 dropped in 109 out 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.”
Lending Rules
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.
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.”
While concerns that the expansion may falter sparked stock market losses, homebuilders have fared worse. The Standard & Poor’s Supercomposite Homebuilder Index plunged 21 percent since the end of June through yesterday, compared with a 8.8 percent drop in the broader S&P 500 Index. (SPX)
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.
Bloomberg Survey
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Housing Building Import Ind.
Starts Permits Prices Prod.
,000’s ,000’s MOM% MOM%
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Date of Release 08/16 08/16 08/16 08/16
Observation Period July July July July
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Median 600 605 -0.1% 0.5%
Average 603 606 -0.1% 0.5%
High Forecast 650 655 0.4% 1.0%
Low Forecast 570 575 -1.8% 0.1%
Number of Participants 77 51 54 85
Previous 629 617 -0.5% 0.2%
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4CAST 590 605 -0.5% 0.6%
ABN Amro 615 --- --- 0.4%
Action Economics 590 595 -0.5% 0.5%
Aletti Gestielle 600 610 --- 0.4%
Ameriprise Financial 608 605 -0.3% 0.3%
Banesto --- --- --- 0.6%
Bantleon Bank AG 600 600 -0.1% 0.4%
Barclays Capital 600 --- 0.1% 0.3%
Bayerische Landesbank --- --- --- 0.6%
BBVA 610 609 0.1% 0.1%
BMO Capital Markets 600 --- --- 0.5%
BNP Paribas 600 --- -0.1% 0.3%
BofA Merrill Lynch 620 605 0.4% 0.5%
Briefing.com 575 600 --- 0.3%
Capital Economics 620 --- --- 0.5%
CIBC World Markets 594 600 --- 0.5%
Citi 580 600 -0.1% 0.8%
ClearView Economics 600 610 -0.4% 0.3%
Comerica Inc 595 --- 0.2% 1.0%
Commerzbank AG 575 600 --- 0.2%
Credit Agricole CIB 600 606 --- 0.6%
Credit Suisse 580 --- 0.4% 1.0%
Daiwa Securities America 580 --- --- 0.5%
Danske Bank 609 598 --- 0.4%
DekaBank 600 610 -0.3% 0.7%
Desjardins Group 590 600 -0.3% 0.3%
Deutsche Bank Securities 620 620 0.0% 0.5%
Deutsche Postbank AG 615 --- 0.3% 0.2%
DZ Bank 600 608 0.1% 0.6%
Exane 600 --- --- 0.4%
Fact & Opinion Economics 600 --- -0.6% 0.3%
First Trust Advisors 580 --- -0.1% 0.5%
FTN Financial 595 590 --- 0.4%
Goldman, Sachs & Co. 598 --- --- 0.5%
Helaba 600 600 --- 0.6%
HSBC Markets 625 620 -1.8% 0.6%
Hugh Johnson Advisors 650 --- 0.4% 0.5%
IDEAglobal 610 605 -0.3% 0.3%
IHS Global Insight 605 634 --- 0.8%
Informa Global Markets 595 600 -0.3% 0.5%
ING Financial Markets --- --- -0.3% 0.5%
Insight Economics 600 --- -0.5% 0.7%
Intesa-SanPaulo 615 605 0.0% 0.5%
J.P. Morgan Chase 590 600 -0.1% 0.9%
Janney Montgomery Scott 620 606 0.0% 0.2%
Jefferies & Co. 580 575 -0.2% 0.7%
Landesbank Berlin 570 590 0.0% 0.7%
Landesbank BW 615 610 --- 0.4%
Manulife Asset Management 615 610 -0.5% 0.2%
Maria Fiorini Ramirez 600 --- 0.0% 0.7%
Market Securities --- --- --- 0.5%
MET Capital Advisors 609 --- --- 0.5%
MF Global 585 590 -0.4% 0.9%
Mizuho Securities 604 --- -0.3% 0.1%
Moody’s Analytics 619 611 0.1% 0.6%
Morgan Keegan & Co. 625 625 0.1% 0.4%
Morgan Stanley & Co. 600 --- --- 1.0%
National Bank Financial 615 610 --- 0.6%
Natixis 640 --- -0.2% 0.3%
Newedge --- --- --- 0.6%
Nomura Securities 574 602 --- 0.6%
Nord/LB 610 610 -0.5% 0.3%
OSK Group/DMG 585 --- --- 0.8%
Parthenon Group 620 606 -0.2% 0.5%
Pierpont Securities 630 --- --- 0.9%
PineBridge Investments --- --- 0.2% 0.3%
PNC Bank 590 --- --- 0.4%
Raiffeisenbank International --- --- 0.0% 0.3%
Raymond James 610 600 --- 0.8%
RBC Capital Markets 590 --- 0.1% 0.6%
RBS Securities 600 --- --- 0.6%
Scotia Capital 600 600 --- 0.3%
SMBC Nikko Securities 650 625 0.1% 0.3%
Societe Generale 625 655 -0.8% 0.8%
Standard Chartered 600 595 -0.3% 0.4%
State Street Global Markets 608 607 -0.3% 0.5%
Stone & McCarthy Research 590 605 0.0% 0.3%
TD Securities 590 595 0.2% 0.1%
UBS 595 615 0.0% 1.0%
UniCredit Research --- --- --- 0.6%
University of Maryland 610 610 -0.4% 0.3%
Wells Fargo & Co. 607 --- 0.2% 0.4%
WestLB AG 612 607 -0.2% 0.4%
Westpac Banking Co. 598 602 0.2% 0.4%
Wrightson ICAP 600 605 -0.2% 0.9%
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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