By Courtney Schlisserman
Oct. 20 (Bloomberg) -- Builders probably broke ground in September on the most houses in 10 months, showing further stabilization in the industry at the heart of the worst U.S. recession since the 1930s, economists said before a report today.
Work began on 610,000 homes at an annual rate, up 2 percent from August, according to the median estimate of 76 economists surveyed by Bloomberg News. Building permits, an indicator of future construction, probably also climbed.
D.R. Horton Inc. is among builders getting back to work after lower prices, cheaper mortgage rates and government tax credits revived sales enough to chip away at record inventory. A drop in builder confidence this month underscores why some Federal Reserve policy makers remain concerned the economy will again stumble should stimulus be removed too soon.
“There is some improvement, we are off the bottom,” said Adam York, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. Even so, “there’s a lot of excess inventory out there and it should take a while to absorb it.”
The Commerce Department’s report is due at 8:30 a.m. in Washington. Forecasts for housing starts ranged from 582,000 to 630,000.
Figures from the Labor Department at the same time may show wholesale prices fell 0.1 percent in September after jumping 1.7 percent a month earlier, according to the survey median. Excluding food and energy, prices may have increased 0.1 percent compared with a 0.2 percent gain in August, the survey showed.
Construction Stabilizes
Stabilization in residential construction is among the reasons economists project the U.S. began to grow again last quarter. Housing starts were up 25 percent in August from April’s record low, according to Commerce Department data. Declines in construction have subtracted a percentage point from economic growth since the start of 2006 on average.
After dropping to a four-decade low in January, sales of new homes climbed in six of the next seven months. Commerce Department figures on September sales are due next week.
Builders are becoming concerned sales will retrench once the government’s $8,000 tax credit for first-time homebuyers expires at the end of next month. The National Association of Home Builders/Wells Fargo’s confidence index, released yesterday, unexpectedly declined in October.
Realtors and homebuilders are urging Congress to extend the incentive and Treasury Secretary Timothy Geithner said last month that the Obama administration plans to take a “careful look” at the proposal.
Fed Concern
Fed policy makers at their September meeting considered a relapse into recession a bigger risk than a near-term rise in prices, according minutes of the gathering released last week. They decided to slow purchases of mortgage securities to avoid disrupting the housing market while extending the duration of the program by three months.
Stocks climbed yesterday, adding to gains over the prior two weeks, as companies reported better-than-expected results for the quarter. The Standard & Poor’s 500 Index reached the highest level in a year yesterday, closing at 1,097.91. By contrast, the S&P Homebuilder Supercomposite Index is down 12 percent since reaching a one-year high in mid-September.
D.R. Horton, the largest U.S. homebuilder by revenue, is among companies projecting the recent improvement in some parts of the country will be sustained. The Fort Worth, Texas-based company said last month it is buying finished lots, rather than building on undeveloped land it already owns, to boost its construction pipeline in anticipation of a housing revival.
‘Encouraging Signs’
“There have been some small encouraging signs in our sales and our average sales prices,” Bill W. Wheat, D.R. Horton’s chief financial officer, said on a Sept. 30 call with investors. Areas such as Las Vegas and Phoenix are “still struggling,” he said.
Rising unemployment and record foreclosures remain among the hurdles for the industry. The jobless rate reached a 26- year high of 9.8 percent last month, according to the Labor Department. Foreclosures depress the values of existing houses, forcing builders to cut prices in order to compete.
A report from the Federal Housing Finance Agency due Oct. 22 will show whether recent gains in home values extended into August.
Bloomberg Survey
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PPI Core Housing Building
PPI Starts Permits
MOM% MOM% ,000’s ,000’s
===============================================================
Date of Release 10/20 10/20 10/20 10/20
Observation Period Sept. Sept. Aug. Aug.
---------------------------------------------------------------
Median 0.0% 0.1% 610 595
Average -0.1% 0.1% 608 594
High Forecast 0.5% 0.5% 630 620
Low Forecast -0.8% -0.1% 582 570
Number of Participants 75 75 76 54
Previous 1.7% 0.2% 598 580
---------------------------------------------------------------
4CAST Ltd. 0.4% 0.1% 610 600
Action Economics -0.7% 0.1% 615 600
AIG Investments 0.5% 0.2% 613 ---
Ameriprise Financial Inc 0.2% 0.2% 610 590
Argus Research Corp. 0.3% 0.2% 595 ---
Banesto --- --- 610 600
Bank of Tokyo- Mitsubishi -0.1% 0.0% 609 602
Bantleon Bank AG -0.1% --- 615 600
Barclays Capital -0.3% 0.1% 615 ---
Bayerische Landesbank -0.2% 0.1% 600 ---
BBVA -0.1% 0.2% 605 595
BMO Capital Markets 0.2% 0.1% 610 590
BNP Paribas -0.4% 0.2% 615 ---
BofA Merrill Lynch Resear -0.8% 0.1% 600 596
Briefing.com 0.0% 0.0% 585 580
Calyon 0.0% 0.1% 612 600
Capital Economics 0.1% 0.1% 610 ---
CIBC World Markets 0.1% 0.1% 620 600
Citi -0.2% 0.1% 610 600
ClearView Economics -0.4% 0.1% 600 570
Commerzbank AG -0.4% 0.2% 600 590
Credit Suisse -0.8% 0.0% 590 ---
Daiwa Securities America 0.0% 0.1% 600 ---
Danske Bank -0.1% 0.1% 620 585
DekaBank -0.1% 0.1% 620 600
Desjardins Group 0.2% 0.2% 615 620
Deutsche Bank Securities 0.4% 0.2% 600 590
Deutsche Postbank AG 0.1% 0.0% 620 ---
DZ Bank 0.2% 0.1% 600 615
Exane -0.4% 0.1% 615 ---
First Trust Advisors 0.1% 0.2% 630 ---
Fortis --- 0.1% 620 ---
FTN Financial -0.4% 0.1% 600 585
Goldman, Sachs & Co. 0.0% 0.1% 616 ---
Helaba 0.1% 0.1% 610 595
Herrmann Forecasting -0.1% 0.1% --- ---
High Frequency Economics -0.2% 0.1% 610 600
HSBC Markets -0.3% 0.1% 620 600
IDEAglobal 0.2% 0.1% 605 590
IHS Global Insight -0.3% 0.2% 609 594
Informa Global Markets 0.0% 0.1% 595 575
ING Financial Markets 0.3% 0.1% 610 610
Intesa-SanPaulo 0.3% 0.1% 610 600
J.P. Morgan Chase -0.1% -0.1% 600 600
Janney Montgomery Scott L 0.2% 0.1% 615 585
Jefferies & Co. 0.1% 0.1% 610 590
Landesbank Berlin -0.3% -0.1% 610 620
Landesbank BW 0.2% 0.1% 600 580
Maria Fiorini Ramirez Inc -0.1% 0.1% 600 ---
MFC Global Investment Man -0.1% 0.3% 620 600
Mizuho Securities -0.2% 0.1% 592 ---
Morgan Keegan & Co. 0.3% 0.2% 607 585
National Bank Financial 0.1% 0.1% 610 ---
Natixis 0.1% 0.5% 610 ---
Newedge 0.1% 0.1% 608 590
Nomura Securities Intl. -0.4% 0.0% 615 590
Nord/LB -0.3% 0.1% 610 595
PNC Bank -0.1% 0.0% 590 ---
Raymond James 0.2% 0.1% 605 590
RBC Capital Markets -0.3% 0.1% 620 ---
RBS Securities Inc. -0.2% 0.2% 590 ---
Ried, Thunberg & Co. -0.3% 0.1% 590 590
Schneider Foreign Exchang 0.2% 0.0% 582 591
Scotia Capital 0.0% 0.1% 630 600
Societe Generale -0.1% 0.1% 625 ---
Standard Chartered 0.0% 0.1% 620 597
Stone & McCarthy Research -0.4% 0.1% 600 585
TD Securities 0.2% 0.2% 620 610
Thomson Reuters/IFR 0.2% 0.2% 610 585
UBS -0.5% 0.1% 590 570
UniCredit Research 0.1% 0.1% 610 590
University of Maryland 0.2% 0.1% 605 600
Wells Fargo & Co. -0.8% 0.0% 620 ---
WestLB AG 0.1% 0.2% 610 590
Westpac Banking Co. 0.2% 0.1% 604 586
Woodley Park Research -0.1% 0.1% 621 604
Wrightson Associates -0.3% 0.1% 590 590
===============================================================
To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net
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