U.S. March Housing Starts Fall 17.6% to 1.84 Mln Rate (Update1)
*Personal Comments: Biggest Fall Since 1991!!!
U.S. March Housing Starts Fall 17.6% to 1.84 Mln Rate
April 19 (Bloomberg) -- U.S. starts of new home construction declined a greater-than-expected 17.6 percent in March, the biggest drop since January 1991.
Work began on 1.837 million homes at an annual rate, the slowest pace since November, compared with a 21-year high of 2.229 million in February, the Commerce Department said today in Washington. The median forecast in a Bloomberg News survey called for starts to drop to 2.09 million from a previously reported 2.195 million.
Builders and their customers may have been deterred by rising interest rates, pushed up by inflation concerns among investors. The decline also adds to evidence the pace of expansion in U.S. gross domestic product may be cooling amid higher energy costs.
``There's a certain loss of momentum in the economy, and this is just another sign of it,' said Roger Kubarych, a senior economic adviser at HVB America Inc., in New York. ``Starts in January and February were lights-out numbers, way above last year, and totally unsustainable.'
The pace of starts compares with last year's total of 1.96 million, which was the most since 1978. Builders broke ground on new housing at a 2.063 million annual rate in the first three months of the year. If continued, that pace would make 2005 the strongest year since 1972.
Building permits, an indicator of future construction, fell 4 percent to 2.023 million units at an annual rate in March, for the lowest since August.
Forecasts for housing starts ranged from 2 million to 2.238 million. Permits were forecast to fall to 2.09 million from a previously reported 2.107 million.
Single-Family Houses
U.S. wholesale prices rose 0.7 percent in March, the most in four months, after rising 0.4 percent in February, the Labor Department reported today. Excluding energy and food, prices rose 0.1 percent, the same as February.
The decrease in starts was led by a 14.4 percent drop for single-family houses to 1.539 million units at an annual rate. That compares with a record 1.798 million in February, higher than previously reported. Starts of multifamily homes decreased 31 percent to 298,000.
Starts for all types of housing fell in all four regions, falling 29 percent in the Midwest to 309,000 at an annual rate; 18 percent in the South to 837,000; 12.7 percent to 503,000 in the West; and 3.6 percent in the Northeast to 188,000.
Some of the decline in the Northeastern U.S. may have been weather related. Snowstorms and high winds struck New York state and the New England region in early March.
Mortgage Rates
Borrowing costs surged last month. The 30-year mortgage rate climbed to 6.1 percent at the end of last month from less than 5.5 percent in early February, according to figures from the Mortgage Bankers Association in Washington. The rise came amid concern that inflation was starting to pick up and would lead the Federal Reserve to speed up the pace of interest-rate increases.
Mortgage rates have since declined, amid reports suggesting that economic growth has cooled. The 30-year mortgage has averaged 5.74 percent so far this year, compared with 5.78 percent for all of 2004, when home sales were a record.
``Even if 30-year fixed mortgage rates reach 6.5 percent, as we're forecasting, that's still very attractive historically speaking,' said Douglas Duncan, chief economist at the Mortgage Bankers Association. The average for the past decade is close to 7 percent.
Backlogs
Backlogs also will sustain construction. Meritage Homes Corp., based in Scottsdale, Arizona, said April 7 the number of houses awaiting construction increased to 5,627 as of March from 3,279 a year earlier. M.D.C. Holdings Inc. had a record backlog of 7,893 homes, the Denver company reported April 5.
The number of single-family houses authorized and not yet started was up 22 percent in March to 220,700 homes at an annual rate from a year earlier. The numbers aren't seasonally adjusted.
March housing completions fell 6.4 percent to 1.766 million units at an annual rate from 1.886 million.
``We have been limiting the number of lots released for sale in many of our communities' to ease backlogs, John R. Landon, co- chairman and chief executive of Meritage, said in a statement. ``In several of our communities, demand is so strong that we have waiting lists and have seen significant price appreciation.'
Higher prices may limit sales this year after four years of record purchases, the National Association of Realtors forecast April 12. The Realtors' group said that existing-home sales will decline 2.4 percent to 6.62 million and new home sales will drop 5 percent to 1.14 million.
Prices
The median price of a new home is expected to rise almost 6 percent this year to $230,100 after increasing 14 percent in 2004, according to a report March 14 from the Mortgage Bankers Association.
``We're getting a more rational housing environment,' Ara Hovnanian, chief executive of Hovnanian Enterprises Inc., New Jersey's largest homebuilder, said before the report. ``The frothiness that we saw over much of the last 24 months is subsiding a little bit and that's a good thing because the increasing home values it produced were pricing some people out of the market.'
Home construction accounted for about 6 percent of the $12 trillion U.S. economy in 2004, previous figures from the Commerce Department show.
Federal Reserve Governor Susan Bies said the U.S. economy is expanding at a ``solid pace' and inflation expectations remain under control, allowing the central bank to keep raising interest rates gradually.
Consumers are also ``in good shape,' she said, even as household debt grew about 10 percent a year from 1999 to 2004. Much of that debt is from larger mortgages, and rising home values also boosted consumers' net worth.
To contact the reporter on this story: Victor Epstein in Washington at vepstein@bloomberg.net
To contact the editor responsible for this story: Kevin Miller in Washington at kmiller@bloomberg.net
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