Bloomberg News

Builders in U.S. Probably Began Work on More Homes in November

December 20, 2011

Dec. 20 (Bloomberg) -- Builders probably began work on more homes in November, a sign the market may be stabilizing heading into 2012, economists said before a report today.

Starts increased 1.1 percent to a 10-month high of 635,000 annual rate last month, according to the median estimate of 79 economists surveyed by Bloomberg News. Permits, a proxy for future construction, may have fallen from October’s 19-month high.

Some prospective buyers are being lured into the market for new homes as borrowing costs hover near a record low, prices fall and banks become more willing to lend. At the same time, builders face competition from existing houses as another wave of foreclosures throws more marked-down properties on the market.

“Housing demand should improve gradually early in 2012 in response to an improving labor market and a better lending environment,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “A considerable excess of existing homes for sale will persist as distressed properties enter the market, but that threat to new-home construction may be lessening.”

The homebuilding report is due from the Commerce Department at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from 600,000 to 655,000.

Builders began work on 586,900 homes last year, the second- fewest on record. Home construction totaled 554,000 units in 2009, the lowest since data-keeping began in 1959.

Fewer Permits

Permits may have slipped to a 635,000 annual rate in November, from 644,000 the prior month, according to the Bloomberg survey median.

Construction of single-family homes will probably post a new low this year at around 419,100, about 11 percent less than in 2010, according to Bloomberg News calculations. The industry is being buoyed by a projected 45 percent jump in work on multifamily units as more homeowners who lose their homes to foreclosure become renters.

Builders have less incentive to start projects for single- family homes as more foreclosures loom on the horizon. Sales of previously owned homes, which now make up about 94 percent of the market, increased 1.4 percent in October, according to figures from the National Association of Realtors.

Investors remain concerned about the prospects for homebuilders. The Standard & Poor’s Supercomposite Homebuilder Index has slumped 11 percent since the end of June through yesterday, compared with a 8.7 percent drop in the broader S&P 500 Index.

Obama Initiatives

The Obama administration this month started a new version of the federal Home Affordable Refinance Program, or HARP, after the original program helped less than a quarter of the people targeted to lock in lower mortgage rates.

Federal Reserve policy makers reiterated at a meeting this month that they will 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 contributing to signs of improvement in the housing market. A report yesterday showed the National Association of Home Builders/Wells Fargo index of builder confidence rose in December for a third straight month, to 21, the highest level since May 2010. Readings below 50 mean more respondents said conditions were poor.

“November is a time that historically sales slow down,” Larry Sorsby, chief financial officer at Hovnanian Enterprises Inc., said in a Dec. 15 call with analysts. “And this year we’ve not seen as dramatic a slowdown as we have in recent prior years. The market feels a little bit better than we would have expected.”

--With assistance from Kristy Scheuble in Washington. Editors: Carlos Torres, Gail DeGeorge

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

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


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