U.S. Housing Starts Drop on Apartments, Condominiums (Update2)

May 19 (Bloomberg) -- Builders broke ground on the fewesthomes on record in April as a plunge in work on condominiums andapartment buildings overwhelmed the second straight gain instarts on single-family properties.

Housing starts slid 13 percent to an annual rate of458,000, a lower level than forecast, Commerce Departmentfigures showed today in Washington. The drop was led by a 46percent tumble in multifamily starts, a category that tends tobe more volatile.

The slump in homebuilding has brought the supply of newproperties below the rate that new households are being created,offering prospects of a recovery in the second half of 2009,analysts said. Surging unemployment and the continuing creditcrunch mean the recovery is likely to be weak, they added.

“This continues to support the story that new constructionprobably bottoms by early summer,” said Adam York, an economistat Wachovia Corp. in Charlotte, North Carolina. “We’re gettingcloser but that doesn’t mean we’re looking for a strongrebound” he said, adding that “obviously, financing remainsdifficult for builders and buyers alike.”

Home Depot Inc. and Lowe’s Cos. this week both postedfirst-quarter earnings that exceeded analysts’ estimates,underscoring signs of a turn in the industry. Confidence amongU.S. homebuilders in May rose to the highest level sinceSeptember, a National Association of Home Builders/Wells Fargosurvey showed yesterday.

Stocks, Treasuries

Stock-index futures surrendered gains after the report,while the Standard & Poor’s 500 Index opened little changed andwas down 0.1 percent at 908.53 as of 9:45 a.m. in New York.Treasuries also were little changed, with yields on benchmark10-year notes at 3.24 percent.

Starts were projected to increase to a 520,000 annual pacefrom a 510,000 previously estimated pace the prior month,according to the median forecast of 74 economists surveyed byBloomberg News. Estimates ranged from 465,000 to 564,000.

Building permits, a sign of future construction, fell 3.3percent to a record low pace of 494,000; permits for single-family properties increased. Total permits were forecast to riseto a 530,000 annual rate, according to the survey median.

Starts by Type

Construction of single-family homes rose 2.8 percent to a368,000 rate, today’s report showed, the second straight monthlygain. Work on multifamily homes, such as townhouses andapartment buildings, plummeted to an annual rate of 90,000 from167,000 the month before.

“Now that fewer homes are hitting the market for sale, thegrowing U.S. population will have fewer homes to choose from,”Tony Crescenzi, chief bond-market strategist at Miller Tabak &Co. in New York, wrote in a note to clients today. “This willundoubtedly be a game changer for inventories and prices.”

The decrease in starts was led by a 31 percent decline inthe Northeast and drops of 21 percent in the South and theMidwest. Starts in the West rose 43 percent.

Home starts have plunged from a peak annual rate of 2.27million in January 2006, which capped the biggest housing boomin six decades. Falling construction has weighed on economicgrowth and plunging home prices helped ignite the global creditcrisis that exacerbated the economic slump.

Home Sales

Still, housing data in recent weeks have shown signs ofstabilization. Sales of existing homes, which in January reachedthe lowest since records began, have held within a narrow rangecentered on a 4.6 million annual rate for five months. Sales ofnew houses, while more than 70 percent below their 2005 peaks,have bounced from a record low set in January.

Foreclosure-driven declines in prices have helped theresale market settle. Distressed properties have made up as muchas 50 percent of existing-home purchases in recent months,according to the National Association of Realtors.

The biggest contraction in residential construction onrecord helped builders trim their excess supply even as salesfaltered. The number of unsold new houses dropped in March tothe lowest level since 2002, according to Commerce figures.

Still, construction companies are feeling the pain ofhaving to slash prices to spur demand. D.R. Horton Inc., thelargest U.S. homebuilder by market value, on May 5 reported aquarterly loss that exceeded analysts’ estimates as ordersplummeted 45 percent from a year earlier.

“Market conditions in the homebuilding industry are stillchallenging, characterized by rising foreclosures, highinventory levels of both new and existing homes, increasingunemployment, tight credit for homebuyers and eroding consumerconfidence,” Chairman Donald Horton said in a statement.

Financing also remains scarce, a quarterly survey of banksby the Federal Reserve showed last month. A larger share oflenders tightened terms on residential mortgages compared withthe prior survey, the Fed said on May 4. At the same time, about35 percent of domestic respondents saw increased demand forprime mortgages, the first gain in at least two years.