U.S. Housing Starts Drop, Permits Reach 14-Year Low

U.S. Housing Starts Drop, Permits Reach 14-Year Low (Update2)


Dec. 18 (Bloomberg) -- Housing starts in the U.S. dropped in November and permits for future construction slid to a 14- year low as home sales fell and lenders made it tougher to get loans.

Work began on 1.187 million homes at an annual rate, down a less-than-forecast 3.7 percent from October, the Commerce Department said in Washington. Permits fell 1.5 percent to a 1.152 million pace.

The decline indicates housing continued to depress growth this quarter, extending the deepest housing slump since 1991. A near-record number of properties on the market and the prospect that prices will keep falling have set the stage for further weakening in demand and construction, economists said.

Housing ``is in for a fairly long correction,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``Builders need to build fewer homes if we're ever going to have a chance of getting rid of this inventory.''

Treasury securities pared earlier losses after the report. The yield on the benchmark 10-year note was 4.16 percent at 8:53 a.m. in New York, from as low as 4.12 percent earlier today and 4.15 percent late yesterday.

Loans Harder to Get

Some buyers are having trouble finding financing after a surge in delinquencies and foreclosures reduced access to subprime mortgages.

The drop in starts was led by a 5.4 percent decline in construction of single-family homes to a 829,000 annual pace that was the lowest since 1991. Building of townhouses, apartments and condominiums rose 0.6 percent, the second consecutive increase.

Starts were projected to fall to a 1.176 million unit pace, from an originally reported 1.229 million in October, according to the median forecast of 70 economists polled by Bloomberg News. Estimates ranged from 1.09 million to 1.25 million.

Permits, a sign of future construction, were forecast to drop to 1.15 million, according to the survey median, with projections ranging from 1.1 million to 1.22 million.

Three of four regions showed a drop in construction, led by a 16 percent slump in the Northeast. Starts fell 6.9 percent in the West and 1.5 percent in the Midwest. Building rose 0.3 percent in the South.

Builder Confidence

A report yesterday added to evidence that housing is far from recovering as 2007 comes to a close. The National Association of Home Builders/Wells Fargo confidence index held at a record low of 19 for a third month in December.

Housing starts in November were 48 percent below their Jan. 2006 peak, matching the drop in sales of new homes from the record reached in July 2005. Sales and construction are likely to continue falling as long as inventories hold near record levels and prices tumble, economists said.

Toll Brothers Inc., the largest U.S. luxury-home builder, Dec. 6 reported its first quarterly loss in 21 years and said the housing slump is the worst the company has seen in decades.

``Broader concerns about the nation's economy have magnified worries about potential price declines in the housing market,'' Chairman and Chief Executive Officer Robert Toll said on a conference call.

Influence of Growth

Declines in home construction have reduced growth since the start of 2006 and detracted 1.1 percentage points in the third quarter. Homebuilding will drop another 25 percent to a trough of fewer than 1 million by the third quarter of 2008, according to a forecast by economists at Lehman Brothers Holdings Inc.

``The momentum in the housing market still is downward,'' said David Seiders, chief economist at the National Association of Home Builders, at a housing conference in Washington Dec. 3. ``Housing starts, given the inventory overhang, probably won't turn up until maybe the third quarter of next year.''

The housing recession has taken a second leg down since subprime mortgage turmoil in August led to a worldwide credit shortage. In the third quarter, new foreclosures hit an all-time high, the Mortgage Bankers Association said in a report Dec. 6, meaning more homes will be piling up on the market.

Moving to contain the damage, President George W. Bush announced a plan this month to freeze rates for five years on some variable rate mortgages and provide assistance to as many as 1.2 million homeowners. The proposal wasn't universally embraced.

Oversupply

``At best, it may stop some of the hemorrhaging of the housing market, but it doesn't necessarily turn things around,' said Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies in Cambridge, Massachusetts. ``The fundamental problem with housing is oversupply.''

Home prices in the U.S. fell 4.5 percent in the third quarter from a year earlier, the most in at least two decades, according to the S&P/Case-Shiller home price index released Nov. 27. Lehman Brothers is forecasting prices to fall at least 15 percent from peak to trough.

Falling home prices leave Americans feeling less wealthy and less likely to spend or borrow against the equity in their homes. That is prompting more economists, including Richard Berner at Morgan Stanley, to call for a recession next year.

BLOOMBERG