U.S. Housing Starts, Permits Drop to Record Low Pace (Update1)

Nov. 19 (Bloomberg) — U.S. housing starts and permits for future construction both dropped to record lows in October, signs the housing downturn may extend into a fourth year.

Construction starts on housing fell 4.5 percent in October, less than economists forecast, to an annual rate of 791,000 that was the lowest since records began in 1959, the Commerce Department said in Washington. Building permits, a sign of future residential projects, dropped 12 percent to a 708,000 pace, the lowest since at least 1960.

Builders mired in a three-year housing slump are finding it hard to attract buyers as property values drop and banks tighten lending standards. Declines in construction spending remain a drag on economic growth, increasing chances of a prolonged recession.

“The problems in housing were exacerbated by the credit problems we had in September and October,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who forecast housing starts would drop to a 790,000 annual pace. “Housing will be slow to rebound from that period.”

Starts were projected to fall to a 780,000 annual pace from a previously estimated 817,000 in September, according to the median forecast of 75 economists polled by Bloomberg News. Estimates ranged from 700,000 to 870,000.

Compared with October 2007, work began on 38 percent fewer homes.

Permits Plunge

Permits decreased more than forecast, compared with a 805,000 annual pace in the prior month.

Construction of single-family homes dropped 3.3 percent to a 531,000 rate, today’s report showed. Work on multifamily homes, such as townhouses and apartment buildings, fell 6.8 percent from the prior month to an annual rate of 260,000.

The decrease in starts was led by a 31 percent decline in the Northeast. Construction dropped 13.7 percent in the Midwest, while starts in the West rose 7.5 percent and were up 1.5 percent South.

The National Association of Home Builders/Wells Fargo index of builder confidence dropped lower than forecast in October to 9, its lowest since record-keeping began in 1985, the Washington-based association said yesterday. The gauge averaged 27 last year.

“We are in a crisis situation,” NAHB chairman Sandy Dunn, a builder from Point Pleasant, West Virginia, said in a statement. “Tremendous economic uncertainties have driven consumers from the housing market, and it’s going to take some major incentives to bring them back.”

Foreclosures

U.S. foreclosure filings in October jumped 25 percent from a year earlier, compared with average monthly gains of about 50 percent so far in 2008, according to RealtyTrac, a seller of foreclosure data. Filings increased 5 percent from September after California passed a law delaying foreclosures for some borrowers.

Home prices dropped in four out of every five U.S. cities in the third quarter, a record spurred by distressed foreclosure sales across the country, the Chicago-based National Association of Realtors said yesterday. The median price of a U.S. home fell 9 percent from a year earlier as sales of properties with mortgages in default accounted for at least a third of all transactions.

The housing slump is cutting into builders’ profits. Toll Brothers Inc., the largest U.S. luxury homebuilder, reported its 10th straight quarterly revenue decline on Nov. 11.

The five largest U.S. homebuilders reported a combined $1.09 billion in losses in their most recent quarters as prospective buyers had difficulty obtaining mortgages. About 70 percent of U.S. banks surveyed indicated they tightened standards on prime mortgage loans, down from 75 percent in the previous survey, the Federal Reserve said on Nov. 3 in its quarterly Senior Loan Officer Survey.

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