U.S. Home Starts Probably Rose in April From Near-Record Lows

By Bob Willis

May 19 (Bloomberg) -- Builders probably broke ground on more homes in April after starts plunged to a near-record-low level the month before, amid signs the housing slump now in its fourth year may be reaching a bottom.

Housing starts increased 2 percent to an annual rate of 520,000 last month, according to the median forecast of economists surveyed by Bloomberg News. Building permits, an indication of future activity, probably rose 2.7 percent to a 530,000 level, the survey showed.

Record-low mortgage rates, prices nearly a third lower than peak levels and tax incentives for first-time buyers are helping to clear a glut of unsold new homes. An easing in the housing slump is viewed as essential to an economic recovery later this year. Still, a sustained turnaround will take time because unemployment is at a 25-year high, foreclosures persist and builders are grappling with tight credit conditions.

“Some quickening in the pace of starts seems inevitable given the recent stabilization in some economic data,” said Tom Porcelli, a senior economist at RBC Capital Markets Corp. in New York. “But builders need to be careful of not getting too far ahead of themselves. Risks remain on the horizon.”

The Commerce Department is due to release the figures at 8:30 a.m. in Washington. Forecasts for starts ranged from 465,000 to 564,000, the survey showed.

Housing data in recent weeks have shown signs of stabilization. Sales of existing homes, which in January reached the lowest since records began in 1990, have held within a narrow range centered on a 4.6 million annual rate for five months. Sales of new houses, while more than 70 percent below their 2005 peaks, have bounced from a record low set in January.

Builder Confidence

Confidence among U.S. homebuilders in May increased to the highest level since September, capping the first back-to-back gain since February 2008, the National Association of Home Builders/Wells Fargo index showed yesterday. A reading below 50 means most respondents view conditions as poor.

Foreclosure-driven declines in prices have helped the resale market settle. Distressed properties have made up as much as 50 percent of existing-home purchases in recent months, according to the National Association of Realtors.

The biggest contraction in residential construction on record helped builders trim their excess supply even as sales faltered. The number of unsold new houses dropped in March to the lowest level since 2002, according to Commerce figures.

Still, construction companies are feeling the pain of having to slash prices to spur demand. D.R. Horton Inc., the largest U.S. homebuilder by market value, on May 5 reported a quarterly loss that exceeded analysts’ estimates as orders plummeted 45 percent from a year earlier.

‘Challenging’ Conditions

“Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of both new and existing homes, increasing unemployment, tight credit for homebuyers and eroding consumer confidence,” Chairman Donald Horton said in a statement.

Pulte Homes Inc. and Centex Corp., the companies that plan to combine this year, also reported quarterly losses that exceeded analysts’ estimates as the housing recession forced them to record $762 million in land writedowns and property expenses.

Richard Dugas, Pulte’s chief executive officer, said in a May 5 statement that the company was “nevertheless encouraged” by sales, traffic and cancellation trends seen in the first quarter that continued into April.

Financing also remains scarce, a quarterly survey of banks by the Federal Reserve showed last month. A larger share of lenders tightened terms on residential mortgages compared with the prior survey, the Fed said on May 4. At the same time, about 35 percent of domestic respondents saw increased demand for prime mortgages, the first gain in at least two years.

                        Bloomberg Survey

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Housing Building

Starts Permits

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Date of Release 05/19 05/19 Observation Period April April ---------------------------------------------------------------- Median 520 530 Average 524 526 High Forecast 564 560 Low Forecast 465 480 Number of Participants 74 50 Previous 510 516 ---------------------------------------------------------------- 4CAST Ltd. 520 530 Action Economics 520 520 AIG Investments 550 --- Aletti Gestielle SGR 530 530 Ameriprise Financial Inc 520 530 Argus Research Corp. 500 --- Bank of Tokyo- Mitsubishi 539 492 Bantleon Bank AG 530 530 Barclays Capital 500 --- BBVA 532 520 BMO Capital Markets 500 516 BNP Paribas 540 --- Briefing.com 525 530 Calyon 520 520 CIBC World Markets 550 560 Citi 520 530 ClearView Economics 550 --- Commerzbank AG 520 520 Credit Suisse 545 --- Daiwa Securities America 520 --- Danske Bank 540 --- DekaBank 520 530 Desjardins Group 530 505 Deutsche Bank Securities 550 550 Deutsche Postbank AG 520 --- First Trust Advisors 560 --- Fortis 540 --- FTN Financial 515 520 Goldman, Sachs & Co. 510 --- Helaba 540 525 Herrmann Forecasting 558 537 High Frequency Economics 500 530 HSBC Markets 535 535 IDEAglobal 520 530 IHS Global Insight 510 527 Informa Global Markets 500 505 ING Financial Markets 515 510 Insight Economics 525 --- Intesa-SanPaulo 520 530 J.P. Morgan Chase 520 495 Janney Montgomery Scott L 547 556 Johnson Illington Advisor 536 --- Landesbank Berlin 550 540 Landesbank BW 520 520 Lloyds TSB 520 530 Maria Fiorini Ramirez Inc 530 --- Merrill Lynch 465 480 MFC Global Investment Man 515 520 Mizuho Securities 500 --- Moody’s Economy.com 530 540 Morgan Stanley & Co. 500 --- National Bank Financial 520 525 Natixis 520 --- Nomura Securities Intl. 545 530 PNC Bank 500 --- Raymond James 535 530 RBS Securities Inc. 520 --- Ried, Thunberg & Co. 510 540 Schneider Foreign Exchang 564 526 Scotia Capital 540 530 Societe Generale 550 --- Standard Chartered 525 527 Stone & McCarthy Research 500 520 TD Securities 530 530 Thomson Reuters/IFR 515 530 Tullett Prebon 520 --- UBS Securities LLC 500 --- Unicredit MIB 540 530 University of Maryland 520 520 Wachovia Corp. 485 --- Wells Fargo & Co. 520 520 WestLB AG 525 535 Westpac Banking Co. 500 537 Wrightson Associates 510 540 ================================================================

To contact the reporter responsible for this story:
Bob Willis in Washington
bwillis@bloomberg.net