By Shobhana Chandra
Aug. 19 (Bloomberg) -- U.S. builders probably broke ground in July on the fewest houses in 17 years, signaling the residential-construction slump will continue to hurt growth, economists said before a government report today.
Housing starts plunged 9.9 percent to an annual rate of 960,000 after a 1.066 million pace the prior month, according to the median forecast of 77 economists in a Bloomberg News survey. A separate report may show wholesale prices probably rose at a slower pace in July as fuel expenses peaked.
Stricter lending rules, rising borrowing costs, falling property values and record foreclosures will further depress home sales and cause builders to keep retrenching. Inflation pressures are likely to ease as the downturn in housing, loss of jobs and credit crisis weaken the economy this year and into 2009.
``The supply of housing continues to be cut in response to the still relatively high inventories of unsold homes,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts. ``This will continue to generate a large negative drag on overall growth in the second half of 2008.''
The Commerce Department will release starts figures at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from 875,000 to 1.09 million.
Also at 8:30 a.m., the Labor Department may report the producer price index climbed 0.6 percent in July after jumping 1.8 percent in June, according to the survey median. Prices excluding food and fuel probably rose 0.2 percent for a third month.
Permits May Drop
Commerce's housing figures may also show building permits, a sign of future construction, fell 15 percent to a 970,000 annual pace, economists forecast.
A change in New York City's building code that took effect July 1 caused housing starts and permits to unexpectedly surge in June as builders hurried to break ground ahead of the new regulations. The magnitude of the July drop may reflect, in part, a payback.
Underneath the gyrations, demand is weakening. Sales of existing homes fell to a 10-year low in the second quarter, according to the National Association of Realtors. A third of all sales were foreclosures or ``short sales,'' in which lenders take a loss on a property.
Financing has also become scarce, a quarterly survey of banks by the Federal Reserve showed. Three-fourths of the loan officers polled reported they tightened standards on prime mortgage loans, up from the April survey. Lending rules on non- traditional loans were also toughened.
Mounting Losses
The five largest U.S. homebuilders reported a combined $1.08 billion in losses in their most recent quarters.
Builders are pessimistic as losses mount. The National Association of Home Builders/Wells Fargo's sentiment index yesterday showed optimism held at a record low in August for a second month.
Still, construction companies are making some headway in reducing the supply glut. The number of new homes for sale dropped in June by the most in four decades.
Some housing-related firms are faring better. Lowe's Cos., the world's second-largest home-improvement retailer, yesterday said full-year profit may fall less than it had anticipated.
``The macro economic factors pressuring consumers and the ongoing challenges and uncertainty of the financial markets suggest a cautious sales forecast for the balance of fiscal 2008 is prudent,'' Chief Executive Officer Robert Niblock said in a statement.
Bloomberg Survey
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PPI Core Housing Building
PPI Starts Permits
MOM% MOM% ,000's ,000's
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Date of Release 08/19 08/19 08/19 08/19
Observation Period July July July July
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Median 0.6% 0.2% 960 970
Average 0.6% 0.2% 961 958
High Forecast 1.8% 0.4% 1090 1040
Low Forecast 0.1% 0.1% 875 850
Number of Participants 77 76 77 53
Previous 1.8% 0.2% 1066 1138
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4CAST Ltd. 0.5% 0.3% 960 910
Action Economics 0.8% 0.2% 980 980
AIG Investments 0.6% 0.4% 1042 ---
Aletti Gestielle SGR 0.5% 0.2% 1000 1020
Allianz Dresdner Economic --- --- 960 ---
Analytical Synthesis --- --- 885 850
Argus Research Corp. 0.7% 0.3% 1075 ---
Banc of America Securitie 0.5% 0.2% 950 ---
Bank of Tokyo- Mitsubishi 0.1% 0.2% 946 953
Bantleon Bank AG 0.6% --- 950 960
Barclays Capital 0.3% 0.2% 960 ---
BBVA 0.8% 0.2% 945 960
BMO Capital Markets 0.2% 0.2% 950 980
BNP Paribas 0.6% 0.2% 973 ---
Briefing.com 0.6% 0.2% 975 975
Calyon 0.5% 0.2% 940 975
CFC Group --- --- 970 980
CIBC World Markets 1.0% 0.3% 920 930
Citi 0.2% 0.2% 900 910
ClearView Economics 0.6% 0.3% 990 ---
Commerzbank AG 0.9% 0.2% 950 950
Credit Suisse 0.1% 0.2% 890 ---
Daiwa Securities America 0.5% 0.2% 950 ---
Danske Bank 0.5% 0.3% 890 970
DekaBank 0.3% 0.3% 980 1000
Desjardins Group 0.7% 0.2% 950 930
Deutsche Bank Securities 0.6% 0.2% 950 975
Deutsche Postbank AG 1.0% 0.2% 970 ---
Dresdner Kleinwort 0.5% 0.2% 930 ---
DZ Bank 0.9% 0.2% 980 990
First Trust Advisors 0.6% 0.2% 964 ---
Fortis 0.7% 0.3% 1065 ---
FTN Financial 0.6% 0.2% 1000 978
GCI Capital 1.8% 0.3% --- ---
Global Insight Inc. 0.7% 0.3% 893 923
Goldman, Sachs & Co. 1.0% 0.3% 938 ---
H&R Block Financial Advis 0.6% 0.3% 960 970
Helaba 0.9% 0.3% 1000 1010
HSBC Markets 0.4% 0.3% 1000 1000
IDEAglobal 1.0% 0.3% 990 995
Informa Global Markets 0.8% 0.3% 970 950
ING Financial Markets 0.6% 0.2% 945 930
Insight Economics 0.8% 0.2% 950 ---
Intesa-SanPaulo 0.5% 0.3% --- ---
J.P. Morgan Chase 0.3% 0.3% 930 920
Janney Montgomery Scott L 0.7% 0.3% 996 944
JPMorgan Private Client 0.9% 0.2% 960 980
Landesbank Berlin 0.7% 0.3% 875 915
Landesbank BW 0.8% --- 940 950
Lehman Brothers 0.4% 0.2% 950 970
Lloyds TSB 0.8% 0.3% 980 990
Maria Fiorini Ramirez Inc 0.8% 0.3% 975 ---
Merk Investments 0.6% 0.2% 965 973
Merrill Lynch 0.5% 0.2% 970 970
MFC Global Investment Man 0.5% 0.2% 960 980
Moody's Economy.com 0.5% 0.3% 940 920
Morgan Stanley & Co. 0.5% 0.2% 920 ---
National Bank Financial 0.5% 0.2% 970 ---
National City Corporation 0.6% 0.3% 1010 980
Natixis 1.0% 0.3% --- ---
Nomura Securities Intl. 0.6% 0.1% 925 860
Nord/LB 0.7% 0.2% 1000 1040
PNC Bank 1.2% 0.3% 950 ---
RBS Greenwich Capital 0.3% 0.1% 935 ---
Ried, Thunberg & Co. 0.3% 0.3% 920 920
Schneider Trading Associa 1.0% 0.3% 994 978
Scotia Capital 0.7% 0.2% 950 960
Societe Generale 0.1% 0.2% 980 ---
Standard Chartered 0.5% 0.2% --- 900
Stone & McCarthy Research 0.5% 0.2% 960 ---
TD Securities 0.5% 0.2% 980 930
Thomson Financial/IFR 0.5% 0.2% 960 990
Tullett Prebon 0.4% 0.1% 945 ---
UBS Securities LLC 0.5% 0.2% 960 ---
Unicredit MIB --- 0.1% 1090 1000
University of Maryland 0.6% 0.2% 970 980
Wachovia Corp. 0.2% 0.2% 930 ---
Wells Fargo & Co. 0.8% 0.2% 980 980
WestLB AG 0.5% 0.2% 960 970
Westpac Banking Co. 0.2% 0.1% 938 910
Wrightson Associates 0.3% 0.3% 920 920
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To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
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