Housing Starts in U.S. Fell on Multi-Family Units

By Shobhana Chandra and Bob Willis


Aug. 18 (Bloomberg) -- Housing starts in the U.S. unexpectedly fell in July, pulled down by multifamily dwellings, while single-family starts which make up most of the industry rose to the highest level since October.

The 1 percent decline in starts to an annual rate of 581,000 was the first drop in three months and followed a 587,000 rate in June, the Commerce Department said today in Washington. Construction of single-family houses, which account for 75 percent of the industry, rose 1.7 percent to a 490,000 rate, today’s report showed.

Single-family home construction has been rising since March, a sign that falling home values and stimulus efforts such as a tax credit for first-time buyers are starting to reverse the housing meltdown that triggered the financial crisis. While the economy is forecast to grow this quarter, foreclosures, tight credit and job losses will temper the recovery.

“It’s still an indication that we’re at a turning point,” Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York, said before the report. “The housing recovery will look uneven until there’s more visibility in the economy.”

Stock-index futures pared gains after the report and Treasuries rose. The yield on the benchmark 10-year note fell to 3.50 percent at 8:43 a.m. in New York, from 3.52 percent earlier in the day. Futures on the Standard & Poor’s 500 Index were up 0.4 percent at 982.60, after earlier reaching 986.40.

Economists’ Forecasts

Total starts were projected to rise to a 599,000 annual pace, after an initially reported 582,000 the prior month, according to the median forecast of 70 economists surveyed by Bloomberg News. Estimates ranged from 542,000 to 646,000, after a 582,000 pace initially reported for June.

Building permits, a sign of future construction, fell 1.8 percent in July to a 560,000 annual pace from 570,000.

Separately, a Labor Department report today showed wholesale prices in the U.S. fell more than forecast in July as energy costs receded. The 0.9 percent decrease in prices paid to factories, farmers and other producers followed a 1.8 percent gain in June, the Labor Department said. Excluding food and fuel, so-called core prices unexpectedly fell 0.1 percent.

Confidence among builders rose to a one-year high this month, a National Association of Home Builders/Wells Fargo index showed yesterday. The gauge climbed to 18, matching forecasts, from 17 the prior month. At the same time, a reading below 50 means most respondents view conditions as poor.

Multifamily

Work on multifamily homes, such as townhouses and apartment buildings, dropped 13 percent to an annual rate of 91,000. Multifamily projects are more vulnerable to credit constraints facing some builders.

The decrease in starts was led by a 16 percent drop in the Northeast, followed by a 1.6 percent decline in the West and 1.4 percent in the South. They rose 13 percent in the Midwest.

Toll Brothers Inc., the largest U.S. luxury homebuilder, reported third-quarter revenue that exceeded analysts’ estimates. New-home contracts rose over the year-earlier quarter for the first time since 2005, Horsham, Pennsylvania-based Toll said on Aug. 12.

“Although some of our markets are still stuck in the mud, many are improving,” Chairman and Chief Executive Officer Robert Toll said on a conference call. “It does feel as if the fence sitters are looking for reasons to jump in.”

Government Help

Government efforts to stoke the housing market have included offering lenders incentives to modify the terms of delinquent mortgages; Federal Reserve purchases of mortgage- backed securities to free up funding for home loans; and an $8,000 tax credit for first-time home buyers for transactions completed before Dec. 1.

Foreclosures remain a threat to builders. About $3.4 trillion worth of houses are at risk of default because the owners owe more than the property is worth, Santa Ana, California-based First American CoreLogic said last week.

Meanwhile, foreclosure-driven declines in prices are lifting sales. Homeowners cut asking prices by $27.8 billion in the year through Aug. 1, according to Trulia Inc., a San Francisco-based real estate data provider.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net; Bob Willis in Washington bwillis@bloomberg.net

Last Updated: August 18, 2009 08:50 EDT