Housing Starts in U.S. Fell 18.9% to 625,000 Pace

By Courtney Schlisserman

Dec. 16 (Bloomberg) -- U.S. builders broke ground in November on the fewest new homes since record-keeping began, signaling the housing slump will extend into a fourth year.

Construction starts on housing fell 18.9 percent last month to an annual rate of 625,000 that was the lowest since the government started compiling statistics in 1959, the Commerce Department said today in Washington. The annual rate was lower than all 70 estimates in a Bloomberg survey of economists.

Dwindling sales and multiplying foreclosures are forcing builders to hold off starting new homes. Decreases in construction spending continue to drag on the economy, increasing the odds of a prolonged recession.

“We’re still looking for further declines from here,” said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina, who had the lowest forecast in the Bloomberg survey. “This is the effect of the economy really slowing down in late September, early October.”

Another government report showed the cost of living in the U.S. fell in November by the most since record-keeping began in 1947. Consumer prices dropped 1.7 percent last month as the price of gasoline and other energy costs plunged, the Labor Department said.

Fed Meeting

Treasuries were little changed and stocks rose ahead of today’s Federal Reserve meeting, at which policy makers are forecast to cut the benchmark overnight lending rate in half, to a record-low 0.5 percent. The Standard & Poor’s 500 Index rose 1.6 percent to 882.38 as of 9:38 a.m. in New York.

Economists had forecast starts would drop to a 736,000 annual pace from a previously estimated October rate of 791,000, according to the median forecast in the Bloomberg survey. Estimates ranged from 650,000 to 810,000. October starts were revised lower to 771,000 in today’s report. Compared with November 2007, starts were down 47 percent.

Building permits, an indicator of future residential projects, declined 15.6 percent to a 616,000 pace, also the lowest on record. Permits were forecast to drop to a 700,000 pace for November, from 730,000 a month earlier, according to the Bloomberg survey.

Single-Family Homes

Construction of single-family homes dropped 16.9 percent to a record-low 441,000 rate, today’s report showed. Work on multifamily homes, such as townhouses and apartment buildings, fell 23.3 percent from the prior month to an annual rate of 184,000.

Housing starts declined in all regions of the country, led by a drop of 34.6 percent in the Northeast. Construction starts fell 23.1 percent in the Midwest, 16.8 percent in the West and 15.6 percent in the South.

The National Association of Home Builders/Wells Fargo index of builder confidence held at a record-low reading of 9 for December, the Washington-based association said yesterday.

“The crisis continues,” NAHB chairman Sandy Dunn, a builder from Point Pleasant, West Virginia, said in a statement. “While builders are doing everything we can in the way of price and non-price incentives to move new homes off the books, buyers are afraid to move forward, and in any case there is almost no way to compete with the cut-rate product that is continually flooding the market from mounting foreclosures.”

Foreclosure Filings

U.S. foreclosure filings in November were 28 percent higher than a year earlier and a brewing “storm” of new defaults and job losses may force 1 million homeowners from their properties next year, RealtyTrac Inc. said Dec. 11.

“Builders are not only correcting for overbuilding but are also competing with a flood of foreclosed homes in the existing home market,” Michelle Meyer, an economist at Barclays Capital Inc. in New York, said before the report. “It’s going to be hard for builders to increase construction in many parts of the country because of the huge overhang.”

President-elect Barack Obama has said his economic team is working on plans to address the housing crisis.

The worsening economic slump suggests the government may need to enact a stimulus package of $600 billion over a two-year period, Laura Tyson, an economic adviser to Obama, said yesterday in an interview on Bloomberg Television.

Toll Brothers Inc., the largest U.S. luxury homebuilder, last week reported its worst annual results since going public more than 20 years ago. The company also said revenue in fiscal 2009 will be “significantly” below the previous year and that it may deliver only 2,000 to 3,000 homes for the period, compared with 4,743 homes this year.

To contact the reporter on this story: Courtney Schlisserman in the New York newsroom cschlisserma@bloomberg.net