U.S. Housing Starts Slide to Lowest Level in 17 Years (Update3)
By Bob Willis
April 16 (Bloomberg) -- Housing starts in the U.S. dropped more than twice as much as forecast in March to a 17-year low, signaling that declining construction will keep eroding economic growth this year.
Work began on 947,000 homes at an annual rate, down 11.9 percent from February and the fewest since March 1991, the Commerce Department said today in Washington. Building permits, a gauge of future construction, fell to a 927,000 rate from 984,000 the prior month.
Foreclosures are pushing down property values by adding to the glut of unsold homes, prompting buyers to hold out for better bargains and undermining new construction. The Federal Reserve will probably lower the benchmark rate again at its meeting this month to cushion the economy against the housing- led slowdown.
``Home construction is probably going to continue to fall right through this year,'' Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview. ``While we see a bottoming in sales in 2008, we really don't see an improvement until later 2009, early 2010.''
A separate report today showed that consumer prices rose 0.3 percent in March from the previous month, matching economists' forecasts. Excluding food and energy costs, prices increased 0.2 percent, the Labor Department said.
Starts were projected to fall 5.2 percent to a 1.01 million pace from an originally reported 1.065 million rate in February, according to the median forecast in a Bloomberg survey of 72 economists. Estimates ranged from 950,000 to 1.1 million.
Permits were forecast to drop to a 970,000 pace, according to the survey median.
The yield on the benchmark 10-year note dropped to 3.58 percent at 9:47 a.m. in New York following the reports, from 3.60 percent late yesterday. The Standard & Poor's homebuilder index rose 1.5 percent to 397.2.
Work on single-family homes decreased 5.7 percent to a 680,000 pace, Commerce said. Construction of multifamily homes, such as townhouses and apartment buildings, fell 25 percent to an annual rate of 267,000 in March.
Starts dropped in all four regions, led by a 21 percent slump in the Midwest.
Residential building has subtracted from economic growth since the first three months of 2006, culminating in a 25 percent decline last year that was the biggest since 1980.
The National Association of Home Builders yesterday forecast housing starts would fall 30 percent this year, compared with a previously estimated 27 percent drop, as the credit crisis persists.
``It's now clear that we have entered what we anticipate will be a mild recession,'' David Seiders, chief economist for the homebuilders' group, said in a statement.
As property values tumble and adjustable-rate mortgages reset, more Americans are walking away from their homes. Foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier, Irvine, California-based RealtyTrac Inc., a seller of default data, said April 14 in a statement.
JPMorgan Chase & Co., the third-biggest U.S. bank, said today that profit fell 50 percent in the first quarter after $5.1 billion of writedowns and provisions linked to subprime mortgages, bad home-equity loans and financing for leveraged buyouts. The company set aside $1.1 billion for future home- equity loan defaults, almost three times as much as in the fourth quarter.
The construction slump is causing job losses to mount and sales of building materials and appliances to drop. Falling home prices undermine consumer confidence and spending, which accounts for two-thirds of the economy.
Homebuilders are also pessimistic. The National Association of Homebuilders said yesterday its confidence index held near a record low this month.
KB Home, the fifth-largest U.S. homebuilder, last month reported a wider loss than analysts projected as the housing recession cut sales and led to land writedowns.
``Many potential buyers either cannot or will not make a purchase commitment today,'' Chief Executive Officer Jeffrey Mezger said on a conference call March 28. ``Many are simply unable to qualify for financing given the more restrictive lending environment.''
Economists surveyed by Bloomberg this month forecast the economy will not grow at all in the first half of the year, the weakest performance since the 2001 downturn.
Fed policy makers are more focused on the threat of recession than inflation, believing that the economic slowdown already under way will help tame prices.
``Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' according to the minutes of Fed's March 18 meeting released last week. While ``uncertainties about the outlook for inflation had risen,'' the minutes said, ``the Committee expected inflation to moderate in coming quarters.''
Investors project the central bank will lower the benchmark rate by at least a quarter point later this month.