Monday, September 30, 2013

Builders Began Work on Fewer U.S. Homes Than Projected in August




By Shobhana Chandra 
     Sept. 18 (Bloomberg) -- Builders began work on fewer U.S.
homes than projected in August and applications for future work
declined more than forecast, underscoring the risk that higher
mortgage rates pose for the real-estate rebound.
     Housing starts rose 0.9 percent to a 891,000 annual rate,
following the prior month’s 883,000 pace that was weaker than
previously estimated, a Commerce Department report showed today
in Washington. The median estimate of 83 economists surveyed by
Bloomberg called for 917,000. Permits dropped 3.8 percent to a
918,000 pace, showing little momentum heading into this month.
     The run-up in borrowing costs, were it to be sustained, may
slow the housing recovery that’s been a mainstay of the
expansion, even as builders such as Hovnanian Enterprises Inc.
say it is just a temporary restraint. Federal Reserve officials
meeting today are assessing whether the economy is strong enough
to warrant scaling back monthly asset purchases.
     “Higher mortgage rates are a negative for the pace of the
housing recovery, though it won’t get derailed,” Russell Price,
a senior economist at Ameriprise Financial Inc. in Detroit, said
before the report. “Builders are aware that conditions aren’t
as optimal as before. Housing has clearly been the brightest
part of the economy.”
     Estimates for starts in the Bloomberg survey ranged from
880,000 to 980,000. The prior month was revised down from a
previously reported 896,000 pace. Activity in June was also
weaker than last estimated.
     Permits were projected to ease to a 950,000 pace from
954,000, according to the survey median.

                          Single Family

     Construction of single-family houses climbed 7 percent to a
628,000 rate, the most since February, from 587,000 the prior
month.
     Work on multi-family homes, such as townhouses and
apartment buildings, dropped 11.1 percent to an annual rate of
263,000.
     Three of four regions showed a decline last month, led by a
10.9 percent slump in the West, today’s report showed. Starts
climbed 12 percent in the South, the largest market.
     Sentiment in the homebuilding industry held in September at
the highest level in almost eight years, figures showed
yesterday. The National Association of Home Builders/Wells Fargo
index of builder confidence registered 58 this month, matching
August’s revised reading as the strongest since November 2005.
     Faster hiring and more widespread access to credit is
needed to help foster bigger gains in demand. At the same time,
mortgage costs that are still near historically low levels may
underpin demand. In addition, rising prices may keep boosting
profits for builders.

                            Beige Book

     Residential real estate “increased moderately,” helping
to contribute to the economic expansion from early July through
late August, the Fed said in its Beige Book survey released
Sept. 4.
     The rate on 30-year home loans averaged 4.57 percent in the
week ended Sept. 12, close to the highest level since July 2011,
according to data from McLean, Virginia-based Freddie Mac. The
rate, which had been as low as 3.81 percent at the end of May,
has been rising since Fed Chairman Ben S. Bernanke that month
indicated the central bank may slow its purchases of government
and mortgage bonds.
     The advance in mortgage costs is unlikely to halt the
nation’s housing recovery, Red Bank, New Jersey-based Hovnanian
said. The company reported a profit for its fiscal third quarter
as net contracts climbed 1.8 percent and the contract backlog,
an indication of future sales, jumped 18 percent to 2,893 homes.

                      ‘Temporary’ Obstacle

     The company is confident any hesitancy from its customers
caused by the jump in borrowing costs “will be a temporary bump
in the road to housing recovery,” Chief Executive Officer Ara
Hovnanian said on a Sept. 9 conference call with analysts.
     Bloomfield Hills, Michigan-based PulteGroup Inc. expects
the run-up in borrowing costs will vary across consumer
segments, James Zeumer, head of investor relations, said on a
Sept. 10 teleconference. For first-time buyers, a half-
percentage-point rise in interest rates means “there will be
some of them that will be out of the game,” he said, while the
move-up buyers “have a little bit more flexibility.”