Builders in the U.S. probably broke ground on more houses in April, rebounding from a five-month low and indicating the industry is stabilizing, economists said before a report today.

Starts climbed 4.7 percent to a 685,000 annual rate, according to the median estimate of 80 economists surveyed by Bloomberg News. Building permits, a proxy for future construction, may have dropped for the first time this year. Industrial production rose in April, a Federal Reserve report is projected to show.

Employment gains, cheaper homes and record-low mortgage rates are combining to lift demand and encourage builders to take on projects. At the same time, distressed properties are thwarting a quicker recovery in the housing market three years after the end of the recession it helped trigger.

“Homebuilding is inching up pretty much everywhere in the U.S.,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. “The days when housing was a drag on the economy are behind us.” Even so, “housing activity is at depressed levels,” with foreclosures “still a problem for builders,” he said.

The housing starts figures are due from the Commerce Department at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from 641,000 to 730,000. The report may also show building permits fell to a 730,000 annual rate from 764,000 the prior month, according to the survey median.

At 9:15 a.m. in Washington, Fed data is projected to show industrial production rebounded in April after two consecutive months of little change. Output at factories, mines and utilities rose 0.6 percent, according to the Bloomberg survey median.

More Optimistic

The outlook for residential real estate is improving, figures signaled yesterday. The National Association of Home Builders/Wells Fargo index of builder confidence jumped to a five-year high, the Washington-based group reported.

Borrowing costs remain attractive. The average rate on a 30-year fixed mortgage fell to an all-time low of 3.83 percent in the week ended May 10, according to data from Freddie Mac going back to 1971. The average 15-year rate dropped to 3.05 percent, also the lowest ever, the McLean, Virginia-based mortgage-finance company said.

A housing affordability index (S15HOME) that’s based on a combination of resale prices, household income and mortgage rates reached an all-time high in the first quarter, the National Association of Realtors reported yesterday.

Investors also are upbeat about prospects. The Standard & Poor’s Supercomposite Homebuilding Index advanced almost 39 percent this year through yesterday, outpacing a 5.8 percent gain in the broader S&P 500. (SPX)

Multifamily Homes

One source of strength in residential construction is that work on apartment projects has climbed as the foreclosure crisis turned more Americans into renters. While demand for multifamily units, which include townhouses, is projected to provide homebuilders with new business, it remains volatile.

In the U.S. Southeast region, which has lagged behind the U.S. recovery the past three years, building is accelerating, led by new construction of condominiums in Miami, according to SunTrust Banks Inc. (STI) Chief Executive Officer William Rogers. Housing in the Nashville, Tennessee, and Washington markets is “back on the upswing,” while Marco Island and Sarasota, Florida, “are showing improvement,” he said.

“We are starting to see some traction,” he said in an interview in Atlanta, where the lender is based. “In housing, things are stabilizing to stabilized.”

Builders still have to contend with a stream of distressed houses returning to the market, adding to inventory and pushing prices even lower.

Federal Reserve

Foreclosures and tight credit markets remain a constraint on the housing industry, said Federal Reserve Governor Elizabeth Duke in a speech yesterday before the National Association of Realtors Midyear Legislative Meetings and Trade Expo in Washington.

Still-elevated foreclosures are “indicative of a historic level of homeowner stress,” she said. At the same time, “they are down from their post-crisis peaks, and there are signs that further gradual improvement may lie ahead.”

The unresolved status of government-sponsored mortgage firms Fannie Mae and Freddie Mac is restraining the recovery in housing by helping to choke off credit, she said. Mortgage lending is also being hampered by uncertainty over the outlook for home prices and government regulations.

There are “some promising signs in the trend of house prices as well” and “somewhat encouraging” indicators of housing construction activity, Duke said.

                      Bloomberg Survey
================================================================
                           Housing Building     Ind.     Cap.
                            Starts  Permits    Prod.    Util.
                            ,000’s   ,000’s     MOM%        %
================================================================
Date of Release              05/16    05/16    05/16    05/16
Observation Period           April    April    April    April
----------------------------------------------------------------
Median                         685      730     0.6%    79.0%
Average                        684      729     0.6%    79.0%
High Forecast                  730      775     1.0%    79.5%
Low Forecast                   641      680     0.2%    78.5%
Number of Participants          80       54       79       68
Previous                       654      764     0.0%    78.6%
----------------------------------------------------------------
4CAST                          720      695     0.7%    79.0%
ABN Amro                       684     ---      0.3%     ---
Action Economics               675      710     0.6%    78.9%
Aletti Gestielle               685      740     0.6%    79.1%
Ameriprise Financial           670      725     0.5%    78.9%
Analytical Synthesis           691      742     ---      ---
Banca Aletti                   680      762     0.5%    79.0%
Bantleon Bank AG               690      730     0.7%     ---
Barclays                       685     ---      0.4%    79.0%
Bayerische Landesbank         ---      ---      0.5%    78.9%
BBVA                           680      750     0.3%    78.5%
BMO Capital Markets            700      725     0.5%    78.9%
BNP Paribas                    690     ---      0.9%    78.8%
BofA Merrill Lynch             685      725     0.5%    79.0%
Briefing.com                   675      725     0.4%    78.9%
Capital Economics              700     ---      0.6%    79.1%
CIBC World Markets             665      730     ---      ---
Citi                           675      730     0.7%    79.1%
ClearView Economics            690      710     0.2%    78.7%
Comerica                       670     ---      0.4%    79.0%
Commerzbank AG                 680      710     0.8%    79.3%
Credit Agricole CIB            670      730     0.4%    78.9%
Credit Suisse                  700      730     0.6%    79.0%
Daiwa Securities America       670     ---      0.5%    78.9%
Danske Bank                    687      726     0.6%     ---
DekaBank                       690      720     0.7%    79.1%
Desjardins Group               710      725     0.5%    78.9%
Deutsche Bank Securities       675      730     0.6%    79.0%
Deutsche Postbank AG           700     ---      0.6%     ---
DZ Bank                        655      730     0.3%    78.7%
Exane                          660     ---      0.5%     ---
Fact & Opinion Economics       675     ---      0.6%     ---
First Trust Advisors           670     ---      0.6%    79.0%
FTN Financial                  680      775     0.4%    79.0%
Goldman, Sachs & Co.           720     ---      0.6%    78.9%
Helaba                         680      720     0.8%    79.2%
High Frequency Economics       700      740     1.0%    79.5%
HSBC Markets                   665      715     0.4%    78.9%
Hugh Johnson Advisors          680     ---      0.4%    78.8%
IDEAglobal                     670      750     0.3%    78.9%
IHS Global Insight             689      733     0.7%    79.1%
Informa Global Markets         690      700     0.5%    78.8%
ING Financial Markets          687      717     0.6%    78.9%
Insight Economics              690     ---      0.7%    79.2%
Intesa Sanpaulo                695      735     0.6%    79.0%
J.P. Morgan Chase              695      715     0.9%    79.2%
Janney Montgomery Scott        670      767     0.3%    78.9%
Jefferies & Co.                665      735     0.4%    78.8%
Landesbank Berlin              680      685     0.6%    79.0%
Landesbank BW                  690      740     0.5%    78.9%
Maria Fiorini Ramirez          675     ---      0.7%    79.1%
Market Securities              672     ---      0.7%     ---
MET Capital Advisors           690     ---      0.7%     ---
Mizuho Securities              667     ---      0.2%    78.7%
Moody’s Analytics              688      735     0.8%    79.1%
Morgan Stanley & Co.           695     ---      0.7%    79.1%
National Bank Financial        690      740     0.5%    78.8%
Natixis                        650     ---      0.4%    78.9%
Nomura Securities              680      680     0.5%    78.9%
Nord/LB                        670      740     0.3%    78.8%
OSK Group/DMG                  670     ---      0.8%     ---
O’Sullivan                     725      730     0.8%    79.2%
Parthenon Group                699      740     0.8%    79.2%
Pierpont Securities            690     ---      0.6%    79.0%
PNC Bank                       710     ---      0.6%    79.0%
Raymond James                  700      720     0.7%    79.1%
RBC Capital Markets            670     ---      0.7%    79.1%
RBS Securities                 655     ---      0.7%    79.1%
Scotiabank                     685     ---      0.6%     ---
SMBC Nikko Securities          675      770     0.5%    79.0%
Societe Generale               700      755     0.7%    79.1%
Standard Chartered             670      720     0.5%    79.0%
Stone & McCarthy Research      685      740     0.9%    79.2%
TD Securities                  690      715     0.7%    78.9%
UBS                            730      730     0.5%    79.0%
UniCredit Research             690      720     0.5%    79.0%
University of Maryland         675      735     0.5%    79.0%
Wells Fargo & Co.              685     ---      0.4%    78.9%
WestLB AG                      678      730     0.4%    78.8%
Westpac Banking Co.            641      726     0.4%     ---
Wrightson ICAP                 690      700     0.9%    79.2%
================================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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