Tags: Economy

Home Builders Struggle to Recover After Second-Worst Year Ever

Wednesday, 19 Jan 2011 11:21 AM

 

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Builders began work on fewer homes than projected in December, a sign the industry that triggered the recession continued to struggle more than a year into the U.S. economic recovery.

Housing starts fell 4.3 percent to a 529,000 annual rate, the lowest level since October 2009, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg News survey called for a 550,000 rate. A jump in building permits, a proxy for future construction, may reflect attempts to get approval before changes in building codes took effect at the beginning of this year.

For all of last year, starts rose 6.1 percent from 2009 to 587,600, the second-fewest in records dating back to 1959.

The Bloomberg survey forecast was based on a poll of 72 economists. Estimates ranged from 510,000 to 588,000. November’s pace was revised to 553,000 from a previous estimate of 555,000.

Meanwhile, companies like KB Homes and Lennar Corp. project demand will be slow to rebound as elevated unemployment and mounting foreclosures discourage buyers. While low borrowing costs and falling prices are helping revive sales from last year’s post tax-credit slump, Federal Reserve policy makers are concerned housing may undermine the economic expansion.

“With sales still near record lows and a lot of unsold properties in the market, there’s very little reason for builders to add more homes to the supply,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, who had forecast starts would drop to a 527,000 rate. “Housing remains a key downside risk to the economy.”

Bank Earnings

Stock s fell as Goldman Sachs Group Inc. and Wells Fargo & Co. reported earnings that failed to beat analysts’ estimates. The Standard & Poor’s 500 Index fell 0.1 percent to 1,293.32 at 9:37 a.m. in New York. The S&P Supercomposite Homebuilding Index dropped 0.5 percent. Treasury securities were little changed.

Permits jumped 17 percent to a 635,000 annual rate in December, the report showed.

Building code changes took effect on Jan. 1 in California, Pennsylvania and New York, the Commerce Department said. Permits surged by 81 percent in the Northeast and by 44 percent in the West. They rose 3.3 percent in the Midwest and dropped 7.6 percent in the South.

Single-Family Houses

Construction of single-family houses decreased 9 percent to a 417,000 rate in December from the prior month, the fewest since May 2009. Work on multifamily homes, such as townhouses and apartment builders, rose 18 percent to an annual rate of 112,000. It marked the first increase in four months.

Three of four regions dropped last month, led by a 38 percent decline in the Midwest.

Weather also played a role. Last month was the seventh snowiest December in a century’s worth of records for the contiguous U.S., based on satellite observations, according to the National Climatic Data Center. About 55 percent of the country had snow by Dec. 27th. It was the third wettest December on record in the West.

Builders had little incentive to take on work when house purchases slumped in mid-2010 following the expiration of a tax incentive of as much as $8,000, which required contracts to be signed by April 30 of 2010 and closed by the end of September.

Fed Policy

Fed policy makers plan to go ahead with a second round of quantitative easing that will pump another $600 billion into financial markets by June in a bid to keep borrowing costs low and spur growth.

Boston Fed President Eric Rosengren is among central bankers concerned growth won’t exceed 4 percent this year because the housing recovery is likely to be weaker than usual, given the tightening of lending standards and high vacancy rates.

“If housing-related growth is not going to boost the recovery this time around, we may need policy — particularly monetary policy — to continue playing a stimulative role,” Rosengren said in a Jan. 14 speech.

Foreclosures may further discourage construction and hurt prices. The number of homes receiving a foreclosure filing will climb about 20 percent in 2011, reaching a peak for the housing crisis, as unemployment remains high and banks resume seizures, RealtyTrac Inc. said this month.

Builder Concern

KB Home, a Los Angeles-based builder that targets first- time homebuyers, on Jan. 7 said cost cuts helped it achieve a fourth-quarter profit, and it is “cautious” about this year.

“Entering 2011, housing market conditions remain difficult,” Jeffrey Mezger, chief executive officer, said in a statement. While “the overall economy has started to recover, the lack of improvement in employment and consumer confidence is likely to continue to hinder a sustained housing recovery.”

Developers’ confidence stagnated in January, reflecting a lack of credit that threatens to hold back construction. The National Association of Home Builders/Wells Fargo sentiment index held at 16, the same as the past two months, figures showed yesterday. Readings less than 50 mean more respondents said conditions were poor.

Home prices have declined each month from August to October, the last month reported, according to the S&P/Case-Shiller index of property values, which tracks 20 U.S. cities.

© Copyright 2014 Bloomberg News. All rights reserved.

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