U.S. Housing Starts Fell in October to 2.014 Mln Rate (Update1)
*More evidence of bubble bursting, building permits dropped by the most in 6 years, just a few months ago they were at record highs... pretty damn drastic fall-off if you ask me...
U.S. Housing Starts Fell in October to 2.014 Mln Rate (Update1)
Nov. 17 (Bloomberg) -- U.S. housing starts fell in October and building permits dropped by the most in six years, suggesting higher mortgage rates are chipping away at home construction after four straight years of record sales.
Builders broke ground on 2.014 million homes at an annual rate last month, down 5.6 percent from a 2.134 million pace in September, the Commerce Department said today in Washington. Building permits dropped to a 2.071 million rate, a 6.7 percent decline that was the largest since September 1999.
Rising mortgage rates and higher home prices that have made buying a house less affordable may limit construction's contribution to economic growth in coming months, economists said. Employment gains and reconstruction from Hurricane Katrina will help keep housing from plummeting, they said. Jobless claims fell last week, a separate report showed.
``The supply of new homes for sale, relative to the pace of sales, has been rising for well over a year, and builders are now reacting by slowing the pace of new construction,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
Economists forecast starts to fall to a 2.07 million annual rate last month from the 2.108 million pace initially reported for September, according to the median of 58 estimates in a Bloomberg News survey. Estimates ranged from 1.99 million to 2.19 million.
Building permits, a sign of future construction, were forecast to fall to a 2.16 million rate from September's 2.219 million, which was the highest in more than 32 years.
Jobless Claims
The number of Americans filing first-time claims for state unemployment benefits declined last week to 303,000, a seven- month low, according to the Labor Department.
Starts declined in all four U.S. regions. They dropped 10.8 percent in the West to 511,000; 10.5 percent in the Midwest to 333,000; 7.5 percent in the Northeast to 172,000; and 0.5 percent in the South to 998,000.
At the current rate, 2.059 million homes will be started this year, which would be the most since a record 2.357 million in 1972, according to calculations by Bloomberg News. Last year, 1.96 million homes were started.
New construction of single-family homes fell 3.7 percent last month to a 1.704 million-unit pace, following September's 1.770 million. Starts of townhouses, apartments and other multifamily dwellings declined 14.8 percent to a 310,000 annual rate from 364,000 a month earlier.
Backlogs
The number of houses already under construction last month fell 0.3 percent to 1.372 million. Housing completions held at 1.964 million. Single-family completions fell 3.6 percent to 1.612 million.
Backlogs of homes authorized for construction but not yet started, declined 4.7 percent to 221,000 units from 231,900 units a month earlier. Backlogs were 15 percent higher than in October 2004, suggesting home building will stay strong in coming months.
``It's still a very solid market,'' Ara Hovnanian, chief executive of Red Bank, New Jersey-based homebuilder Hovnanian Enterprises Inc. said in an interview on Nov. 8. ``If you take out the frothy pace from the last two years, large public homebuilders have been growing at a phenomenal pace.''
The average rate on a 30-year fixed mortgage was 6.07 percent last month, according to Freddie Mac, the No. 2 buyer of mortgages. Fannie Mae is the largest. Rates have increased for nine straight weeks and are higher than the 5.74 percent average a year ago.
Effect on Growth
At last month's average rate, borrowing costs for every $100,000 of a loan would be $603.74 a month. When rates were a 40- year low of 5.21 percent in June 2003, costs were $549.73 a month.
``We're finally getting back to something more normal in terms of rates and the economy and I think that will get rid of some of the froth,'' in home prices and sales, Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, said.
Because the growth of residential construction, which makes up more than half of total construction spending, is slowing, its contribution to the economy is diminishing.
Third-quarter home construction, which includes homebuilding and renovations, rose at the slowest pace this year, a 4.8 percent annual rate, and contributed 0.28 percentage point to total economic growth during the three months. The U.S. economy expanded at a 3.8 percent annual rate from July through September.
Builders
Reconstruction after Hurricane Katrina, which hit the U.S. Gulf Coast on Aug. 29, may help bolster building in the South early next year, economists said. In addition, the storms are making building more costly because of materials shortages, higher oil prices and a shortage of available workers, Hovnanian said.
While average sales prices are rising, builders are absorbing some of the higher costs, Hovnanian said. As mortgage rates rise, prospective buyers may opt for fewer amenities or even smaller homes, he said.
Other reports suggest the higher mortgage rates and prices are eroding demand for homes by making them inaccessible to some buyers. Toll Brothers, the largest U.S. builder of luxury homes, earlier this month reduced its sales forecast for next year and said the housing market is weakening after a five-year boom. ``We have seen a very, very strong homebuilding market, above normal in the last two years,'' Toll Brothers Inc. Chief Financial Officer Joel Rassman said in an interview on Nov. 8. ``We're seeing a moderation of those price increases back to normal levels and we would expect to see a moderation of demand.''
Prices
Toll still expects to sell more homes this fiscal year, 9,500 homes for the 12 months ending next October, than it did the previous year, when it sold 8,769.
The median price of an existing single-family home climbed 15 percent in the third quarter from a year earlier, the biggest gain since the third quarter of 1979, the National Association of Realtors said on November 15. The group also said that sales of new and existing homes probably reached a peak in the third quarter.
``The anecdotes we hear and the expectation is that the rate of increases in housing prices will slow,'' Michael Moskow, president of the Federal Reserve Bank of Chicago, said on Nov. 15. ``If that happens I think the economy will adjust to that in an appropriate fashion without significant side effects.''
Fed policy makers earlier this month raised interest rates for a 12th meeting in a row by a quarter-point to 4 percent and signaled that further increases may be in store to head off inflation.
To contact the reporter on this story: Courtney Schlisserman in the New York newsroom 2300 or cschlisserma@bloomberg.net
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