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Nov. 17 (Bloomberg) -- Builders probably began work on fewer homes in October, a sign housing will remain a laggard in the third year of the U.S. recovery, economists said before a report today.
Starts fell 7.3 percent to a 610,000 annual rate in October, according to the median estimate of 82 economists surveyed by Bloomberg News. Manufacturing in the Philadelphia area expanded for a second month, other data may show.
Builders like D.R. Horton Inc. and Beazer Homes USA Inc. may be hesitant to begin projects as foreclosures push down property values. Unemployment at 9 percent and falling home prices have also kept buyers on the sidelines, helping explain why the Federal Reserve and Obama administration are looking for ways to jumpstart housing.
“We’re still seeing tough issues throughout the housing market,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “Foreclosures remain a challenge. There will be a very gradual improvement. The industry still needs help from policy makers.”
The homebuilding report is due from the Commerce Department at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from 575,000 to 640,000. In September, demand for apartments and condominiums helped boost starts to a 658,000 pace, the fastest since April 2010.
The median projection for October compares with last year’s tally of 587,000 starts, the second-fewest on record. Home construction totaled 554,000 units in 2009, the lowest since record-keeping began in 1959.
Permits may have climbed to a 603,000 annual rate, from 589,000 the prior month, according to the Bloomberg survey median.
The Federal Reserve Bank of Philadelphia may report at 10 a.m. that its general economic index was little changed at 9 in November from 8.7 the previous month, according to the Bloomberg survey median. Readings greater than zero indicate expansion.
The report may add to evidence that factories are helping the world’s largest economy weather financial-market disruption caused by the debt crisis in Europe. Figures from the Fed yesterday showed industrial production climbed 0.7 percent in October, more than forecast, boosted by demand for cars and business equipment.
Builders, in contrast, have less incentive to start projects as demand remains uneven. Purchases of new houses rose 5.7 percent in September as discounted prices lured buyers in some regions. Sales of previously owned homes, which make up about 94 percent of the market, fell 3 percent.
D.R. Horton, the second-largest homebuilder by revenue, reported quarterly earnings that missed analyst estimates. The Fort Worth, Texas-based company has been lowering costs and shifting its focus to move-up buyers as demand remains weak.
“We’re still a bit cautious about the overall environment,” Chief Financial Officer William Wheat said on a conference call with investors on Nov. 11. “It is still a challenging homebuilding environment out there.”
Beazer Homes, an Atlanta-based homebuilder, this week reported a loss in the quarter ended Sept. 30, and cited “many challenges facing the industry.”
Even as concerns about Europe weigh on the U.S. economy, investors are more concerned about prospects for homebuilders. The Standard & Poor’s Supercomposite Homebuilder Index has slumped 12 percent since the end of 2010 through yesterday, compared with a 1.6 percent drop in the broader S&P 500 Index.
President Barack Obama has been promoting an initiative by the Federal Housing Finance Agency to let qualified homeowners refinance mortgages regardless of how much their houses have lost in value. The Home Affordable Refinance Program, or HARP, will eliminate some fees, trim others and waive some risk for lenders.
The Fed’s efforts include a commitment to keep the benchmark interest rate near zero until at least 2013. The central bank in September decided to reinvest maturing housing debt into new mortgage-backed securities instead of Treasuries.
Some policy efforts may be starting to bear fruit. A report yesterday showed the National Association of Home Builders/Wells Fargo index of builder confidence rose to 20 in November, the highest level since May 2010. Readings below 50 mean more respondents said conditions were poor.
Also today at 8:30 a.m., Labor Department figures may show initial claims for jobless benefits rose to 395,000 last week from 390,000 the prior week, according to the Bloomberg survey median.
--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Carlos Torres
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