Housing Starts in U.S. Fell More Than Forecast, Permits Climb

Housing starts in the U.S. fell more than anticipated in December, while building permits unexpectedly jumped, signaling inclement weather may have kept builders away from worksites.
By: Bob Willis: Bloomberg.com
Work began on 557,000 houses at an annual rate, down 4 percent from November, figures from the Commerce Department showed today in Washington. Permits, a sign of future construction, climbed to the highest level in a year.

The government’s extension and expansion of a tax credit for first-time buyers may help underpin demand in the first half of 2010, giving builders reason to ramp up new projects. The gain in permits, which are less influenced by weather, indicates an unseasonably cold and wet December probably prevented some work from getting started last month, according to economists like Maury Harris.

“It’s the weather,” Harris, chief economist at UBS Securities LLC in New York, said before the report. “The deadline for the homebuyer tax credit is going to accelerate sales and building activity” in coming months.

Starts were projected to fall to a 572,000 pace last month according to the median estimate of 72 economists surveyed by Bloomberg News. Projections ranged from 495,000 to 630,000. The government revised November’s reading up to a 580,000 from the 574,000 previously estimated.

For all of 2009, builders broke ground on 553,800 houses, the fewest since records began in 1959. The annual rate was down 39 percent down from 2008’s 905,500, which was the second-lowest ever.

More Permits

The report showed building permits increased 11 percent to a 653,000 pace, the most since October 2008. Permits were forecast to fall to 580,000.

Construction of single-family houses decreased 6.9 percent to a 456,000 rate.

Work on multifamily homes, such as townhouses and apartment buildings, climbed 12 percent to an annual rate of 101,000.

Three of four regions showed a decline in starts in December, led by a 19 percent drop in the Northeast. The South showed a 3.3 percent gain.

There are still headwinds to a housing recovery. Rising foreclosures are adding to inventory and may discourage builders. A record 3 million U.S. homes will be repossessed by lenders this year as high unemployment and depressed home values leave borrowers unable to make their house payment or sell, according to a RealtyTrac Inc. forecast on Jan 14.

Last year there were 2.82 million foreclosures, the most since RealtyTrac began compiling data in 2005.

Credit Extended

President Barack Obama on Nov. 6 extended an $8,000 first- time buyer credit that was due to expire at the end of the month and expanded it to include current homeowners. The extension covers closings through June as long as contracts are signed by the end of April. Still, the measure may have pulled sales forward, depressing demand in the second half of the year.

Sales of new houses dropped 11 percent in November, the month the government’s tax credit was due to expire. A jump in purchases of existing homes pushed total sales up to a 6.895 million annual pace, the most since March 2007.

Weather may have also played a role in depressing December housing starts, economists said. Last month was the 14th coldest December and 11th wettest in 115 years of record keeping, according to the National Climatic Data Center, in Asheville, North Carolina.

Less Confidence

Confidence among U.S. homebuilders unexpectedly dropped in January to the lowest level since June, the National Association of Home Builders/Wells Fargo said yesterday.

Any sustained recovery will require gains in employment, economists said. The U.S. has lost 7.2 million jobs since the recession began, and economists surveyed by Bloomberg early this month forecast joblessness will average 10 percent this year.

KB Home, the Los Angeles-based homebuilder that sells to first-time buyers, is among homebuilders struggling. The company last week reported a pretax loss of $91 million on declining revenue for the fiscal fourth quarter that ended Nov. 30.

KB Home’s orders rose 12 percent to 1,446 from 1,296 in the year-earlier quarter, while completed sales dropped 22 percent to 3,042, according to the report. The average price declined 12 percent to $203,400.

KB Home is “not going to make money in the first quarter” and plans to “restore profitability” in the second half of 2010, Chief Executive Officer Jeffrey Mezger said Jan. 12 in a conference call with analysts and investors.