U.S. Housing Starts Probably Stayed Near 1991 Low, Survey Shows

U.S. Housing Starts Probably Stayed Near 1991 Low, Survey Shows

Feb. 20 (Bloomberg) -- Housing starts in the U.S. remained near the lowest level since 1991 in January, a sign the deepest real-estate recession in a quarter-century will weigh on the economy for a third year, economists said before a report today.

Commerce Department figures may show housing starts rose 0.4 percent to an annual rate of 1.01 million units, from a 16- year low of 1.006 million in December, according to the median estimate in a Bloomberg survey of 72 economists. Another report may show consumer prices rose 0.3 percent in January, a slower rate than in the prior month, according to the survey median.

A glut of unsold homes, mounting foreclosures and falling prices signal the housing slump will continue to detract from growth, setting the stage for more interest-rate cuts. Federal Reserve Chairman Ben S. Bernanke, citing the housing recession, last week said updated quarterly Fed forecasts to be published today would reflect slower growth projections.

``For 2008 as a whole, construction will continue to fall,'' Richard Moody, chief economist at Mission Residential, a real estate investment firm in Austin, Texas, said before the report. ``When we do hit bottom, we will stick there for some time, as demand will still be constrained by tougher lending standards and jittery credit markets.''

The Commerce Department will release the construction figures at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from annual rates of 950,000 to 1.1 million.

The same report may show building permits, an indicator of future construction, declined 1.7 percent to a 1.05 million pace, the lowest in 16 years, economists said. Forecasts ranged from 990,000 to 1.095 million.

Consumer Prices

Inflation figures, to be released by the Labor Department at the same time, will probably show consumer prices rose 4.2 percent in the 12 months ended in January, according to the survey median.

Core prices, which exclude food and energy, probably increased 0.2 percent in January and were up 2.4 percent from a year earlier, according to economists surveyed.

Investors and economists are betting the Federal Reserve will cut its benchmark rate by a half point to 2.5 percent at its next meeting, on March 18, while a majority forecast an additional quarter-point cut in April.

The Fed's quarterly forecasts will be released at 2 p.m., along with minutes of the Jan. 29-30 meeting that led to a half percentage-point rate cut, and a record of the emergency Jan. 21 conference that produced a three-quarter-point reduction.

The Fed's cuts in January, the fastest easing of monetary policy since 1990, came as rising subprime defaults led to a global tightening of credit standards and declines in equity prices. Bernanke and other policy makers have indicated a readiness for further reductions if necessary.

Bernanke's Testimony

The Fed ``will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,'' Bernanke told Congress last week. ``To date, inflation expectations appear to have remained reasonably well-anchored,'' he said.

The U.S. economy will probably grow at a 0.5 percent pace in the first quarter and a 1 percent rate in the following three months, according to the median forecast in a Bloomberg survey of economists taken the first week of February. Economists surveyed said a recession this year was an even bet.

``Growth looks to be weak but still positive during the first half of the year,'' Bernanke said last week.

Impact on Spending, Jobs

The decline in home construction, exacerbated by tighter credit conditions, is slowing demand for construction materials and appliances, and increasing firings at builders, lenders and retailers. Falling home prices are leaving consumers feeling less wealthy, slowing the spending that makes up two-thirds of the economy.

Rising foreclosures are adding to inventories. Home foreclosures rose 97 percent in December from a year earlier, while an estimated 1.03 percent of homes were in some stage of foreclosure in 2007, RealtyTrac reported Jan. 29.

Home builders are hardest hit. Kimball Hill Inc., a closely held homebuilder active in six states, said Feb. 15 it may file for Chapter 11 bankruptcy protection as demand for new homes tumbles.

``There are substantial doubts about whether the company will be able to continue as a going concern,'' Rolling Meadows Illinois-based Kimball Hill said in a regulatory filing.

BLOOMBERG