Housing Starts, Permits in U.S. Slump to Record Low

By Timothy R. Homan

Jan. 22 (Bloomberg) -- U.S. builders broke ground in December on the fewest houses since record-keeping began as sales and credit dried up, signaling the real-estate slump will keep hurting economic growth.

Housing starts fell 16 percent last month to an annual rate of 550,000 that was less than forecast and the lowest since the government started compiling statistics in 1959, the Commerce Department said today in Washington. Building permits, an indicator of future projects, were also at a record low.

Builders, whose shares have lost 76 percent of their value over the last three years, are slashing prices to compete with a record number of foreclosed homes coming onto the market. Barack Obama’s advisers say the president will use up to $100 billion in financial-rescue funds to ease the mortgage crisis.

“Homebuilders have no choice,” said Ryan Sweet, an economist at Moody’s Economy.com Inc. in West Chester, Pennsylvania. “The market is bloated with excess supply and demand is weak. The pace of housing starts will remain depressed until 2011.” Economy.com projected starts would drop to a 580,000 pace.

Another government report showed the number of Americans filing first-time claims for unemployment benefits rose last week, matching a 26-year high. Initial jobless claims increased by 62,000 to 589,000, more than forecast, in the week ended Jan. 17, according to a Labor Department report today in Washington.

Economists had forecast starts would drop to a 605,000 annual pace from a previously estimated November rate of 625,000, according to the median of 69 forecast in the Bloomberg survey. Estimates ranged from 500,000 to 688,000. November starts were revised up to 651,000 in today’s report.

Last Year’s Starts

For all of 2008, starts dropped 33 percent to 904,300, down from 1.335 million in 2007 and also the fewest since records began.

Building permits fell 11 percent in December to a 549,000 annual pace. They were forecast to drop to a 600,000 pace, according to the Bloomberg survey.

Construction of single-family homes dropped 14 percent to a 398,000 rate, today’s report showed. Work on multifamily homes, such as townhouses and apartment buildings, decreased 20 percent from the prior month to an annual rate of 152,000.

Housing starts declined in three of four regions of the country, led by a drop of 25 percent in the Midwest. Starts rose 13 percent in the Northeast.

Confidence Slumps

The National Association of Home Builders/Wells Fargo index of builder confidence slumped to a record low for January, the Washington-based association said yesterday.

U.S. foreclosure filings in December were 41 percent higher than a year earlier, pushing up the inventory of unsold homes, RealtyTrac Inc., a seller of default data, said this month.

Obama’s National Economic Council Director Lawrence Summers said last week the president intends to use between $50 billion and $100 billion of the remaining half of the $700 billion bank- bailout fund enacted last year to address the foreclosure crisis.

Falling borrowing costs have yet to reverse the downturn in sales. The average rate on a 30-year fixed mortgage fell to 4.96 percent earlier this month for the first time on record, Freddie Mac said in a report last week.

KB Home, the fourth-largest U.S. homebuilder that caters to first-time buyers, reported a $307.3 million net loss on Jan. 9 for the fourth quarter and said the housing market would remain difficult this year.

“The housing industry continues to confront unprecedented downward pressure,” Chief Executive Officer Jeffrey Mezger said in a conference call with analysts and investors. “These conditions persist nationally with no visible signs of lessening in the near term.”

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net