Bloomberg News

Housing Starts in U.S. Probably Rose in June for Second Month

July 19, 2011

July 19 (Bloomberg) -- Housing starts in the U.S. probably rose in June for a second month as the industry struggled to recover in the face of foreclosures and rising unemployment, economists said before a report today.

Construction began on 575,000 houses at an annual rate, up 2.7 percent from May, according to the median projection of economists surveyed by Bloomberg News. Building permits, an indicator of future projects, fell 2.3 percent to a 595,000 rate, the survey showed.

Declining home values and delays in processing foreclosures mean it may take years to clear the market of distressed properties, a sign a sustained gain in homebuilding will take time to unfold. Federal Reserve Chairman Ben S. Bernanke last week said housing remains “depressed” due in part to the limited job and income growth that is also restraining the broader economy.

“When you’re a builder and you’re fighting against cheaper, foreclosed homes, you have to be cautious,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “The housing market is one of the weaker links in the economy.”

The Commerce Department will report the figures at 8:30 a.m. in Washington. Estimates of the 71 economists surveyed by Bloomberg ranged from 500,000 to 610,000.

The median projection for the annual pace of housing starts in June is less than the 587,000 begun last year, the second- fewest on record. Home construction totaled 554,000 units in 2009, the lowest since record-keeping began in 1959. Starts reached a peak of 2.07 million in 2005.

Foreclosure Pipeline

With an overhang of distressed homes making their way through the foreclosure pipeline, more cash investors are looking for bargain, foreclosed properties and eschewing new houses. At the same time, unemployment above 9 percent and strict lending standards make it harder for most Americans to take advantage of mortgage rates that are close to a record low.

Purchases of previously owned homes, which make up about 95 percent of the market, climbed 1.9 percent in June from May’s six-month low to a 4.9 million annual rate, according to the median projection of economists surveyed by Bloomberg News before a National Association of Realtors’ report tomorrow.

Purchases of existing homes slumped to a 13-year low of 4.91 million in 2010 after reaching a record 7.08 million in 2005, during the housing boom.

‘Ominous Shadow’

Lender delays in processing home-loan defaults will push as many as 1 million foreclosure filings from this year into 2012 or beyond, casting an “ominous shadow” on the housing market, RealtyTrac Inc., a housing data provider, said last week. A clogged foreclosure pipeline may prevent real estate prices from finding a bottom as the housing slump extends into a sixth year.

With home prices continuing to drop and more distressed properties making their way to the market, builders remain reluctant to take on new projects.

Instead, demand for apartments and other multifamily housing that make up about a quarter of starts may be starting to increase as more Americans become renters.

The S&P/Case-Shiller index of property values in 20 cities fell 4 percent in April from a year earlier, the biggest drop since November 2009, the group said last month. The index was down 33 percent from its peak in July 2006.

Bernanke on Housing

“The high proportion of distressed sales are keeping downward pressure on house prices,” Bernanke said July 13 in testimony to the House Financial Services Committee. “The demand for homes has been depressed by many of the same factors that have held down consumer spending more generally, including the slowness of the recovery in jobs and income as well as poor consumer sentiment.”

A report yesterday showed homebuilder confidence improved from a nine-month low. The National Association of Home Builders/Wells Fargo sentiment index rose to 15 this month from 13 in June. Readings lower than 50 mean more respondents view conditions as poor.

Homebuilder shares have lagged behind the broader market this year. The Standard & Poor’s Homebuilder Supercomposite Index has dropped 5.8 percent through yesterday, compared with a 3.8 percent gain for the S&P 500 Index.

Some builders see signs of stabilization. Miami-based Lennar Corp., the third-largest U.S. homebuilder by revenue, last month reported second-quarter profits that beat analysts’ estimates on rising earnings at its distressed-investing unit.

“It is beginning to feel like the worst days of the housing market are getting behind us,” said Stuart Miller, chief executive officer of Lennar, on a June 23 conference call. “Stabilization and recovery will continue to be a slow and rocky process.”

--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Carlos Torres

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

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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