Housing starts in the U.S. increased more than forecast in August, a signal the industry is stabilizing.
Builders broke ground on 598,000 homes at an annual rate, up 10.5 percent and the most since April, following a 541,000 pace in July, the Commerce Department said today in Washington. Economists forecast August starts at a 550,000 pace, according to the median estimate in a Bloomberg News survey. Building permits, a proxy of future activity, rose from a record low.
Mortgage rates close to record lows may be giving builders some confidence to begin new projects after the expiration of a government tax credit caused sales to plunge. Even so, a housing recovery is dependent on a drop in the unemployment rate, which is currently near 10 percent.
“Housing is recovering at a very anemic pace compared with other postwar recoveries,” Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York, whose starts forecast was the highest in a Bloomberg News survey, said before the report. “The inventory of unsold homes is still very, very substantial and as a result it’s going to take time before we start to see sales improve meaningfully and starts improve meaningfully.”
Stock-index futures erased losses after the figures were released. Futures on the Standard & Poor’s 500 Index expiring in December rose 0.2 percent to 1,138.3 at 8:38 a.m. in New York. The yield on the U.S. 10-year Treasury note fell to 2.68 percent from 2.70 percent late yesterday.
Estimates for August starts in the Bloomberg survey of 74 economists ranged from 505,000 to 600,000 after a previously reported 546,000 a month earlier.
Building permits were projected to be little changed at 560,000, according to the median estimate in the survey. Permits reached a record low of 559,000 in July.
Starts were up 2.2 percent in August from the same month last year, while permits decreased 6.7 percent.
Construction of single-family houses rose 4.3 percent to a 438,000 rate after the prior month’s 6.7 percent decline.
Work on multifamily homes, such as townhouses and apartment buildings, increased 32 percent to an annual pace of 160,000.
Three of four regions of the country had an increase in starts last month, led by a 34 percent surge in the West and a 22 percent gain in the Midwest.
The Fed’s policy-making Federal Open Market Committee is scheduled to announce its decision on interest rates today at about 2:15 p.m. The benchmark interest rate has been in a range of zero to 0.25 percent since December 2008. Economists surveyed by Bloomberg earlier this month forecast the central bank will hold that rate until late 2011.
The central said in its Beige Book survey of regional Fed banks earlier this month that there were “widespread signs of a deceleration” in the economy from mid-July through the end of August. Most areas of the U.S. reported “very low or declining home sales.”
The National Bureau of Economic Research said yesterday the recession that began in December 2007 ended in June 2009, making it the longest contraction since the Great Depression. The Cambridge, Massachusetts-based bureau’s business cycle dating group is the accepted arbiter of when recessions start and end.
Sales of new houses dropped in July to the lowest level in records dating back to 1963, figures from the Commerce Department showed last month. The government is scheduled to release August sales data on Sept. 24.
After the Credit
Demand plunged after the deadline for signing contracts and becoming eligible for a government homebuyer credit worth as much as $8,000 lapsed on April 30. The tax incentive provided temporary relief for the industry that precipitated the recession.
Rising foreclosures depress prices and mean homes stay on the market longer, hurting builders. Home seizures reached a record in August for the third time in five months, RealtyTrac Inc. said Sept. 16.
A lack of jobs is preventing some buyers from making mortgage payments. The 13 months of unemployment at 9.5 percent or higher matches the period from mid 1982 to mid 1983 as the longest span of elevated joblessness since monthly records began in 1948.
The Obama administration has said it plans to announce proposals in the next few weeks for an emergency loan program for the unemployed to avert default, and a government mortgage refinancing effort to lower monthly mortgage payments to avoid foreclosures.
Unemployment and Confidence
The end of the homebuyer credit, joblessness and sagging consumer confidence prompted a decline in orders at Hovnanian Enterprises Inc., the largest homebuilder in New Jersey said on Sept 1. The company said its net orders dropped 37 percent in the quarter ended July 31 from a year earlier.
“Job creation is the key to a housing recovery, which makes it difficult to predict how improvements in the economy and housing market play out,” Chief Executive Officer Ara Hovnanian said in a statement.
That may explain why shares of builders have declined this year, while the broader market has gained. The Standard & Poor’ Supercomposite Homebuilding Index, which includes D.R. Horton Inc. and Lennar Corp., is down 3.5 percent so far this year compared with a 2.5 percent gain for the S&P 500.
The builder index jump 4.6 percent yesterday, the most in three months, after Miami-based Lennar reported better-than- estimated third-quarter profit. Lennar is among companies finding other ways to boost earnings as sales slump. The fourth-largest U.S. homebuilder by revenue is cutting costs and expanding its distressed investing unit.
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