Housing starts fall 2.7 pct to a record low in US market

Bloomberg

American builders probably broke ground in December on the fewest houses on record as sales and credit dried up, economists said before reports this week.

Housing starts fell 2.7 percent last month to an annual rate of 605,000, the lowest level since the Commerce Department started compiling data in 1959, according to the median estimate in a Bloomberg News survey. Building permits, a sign of future projects, also probably dropped to a record low.

Builders, whose shares have lost 76 percent of their value over the last three years, are slashing prices to compete with a record number of foreclosed homes coming onto the market. In recognition of the need to stem the housing slump, Barack Obama’s advisers say the president elect will use up to $100 billion in financial-rescue funds to ease the mortgage crisis.

Construction of new homes fall 21 percent
"Starts and permits will continue to drop over the first half of this year," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. "A second half rebound is likely, provided financial markets continue to thaw and interest rates remain low."

The housing-starts report for December is due Jan. 22. Construction of new homes fell 21 percent in November to a 625,000 annual rate.

Residential starts will slump another 29 percent in 2009 after dropping an estimated 33 percent last year, according to a survey released Jan. 6 by the National Association of Realtors.

Homebuilders are curbing construction and cutting prices as mounting foreclosures push up the inventory of unsold homes. Delinquency filings increased 41 percent in December from a year earlier, according to RealtyTrac Inc., a seller of default data.

Falling prices also make it harder for owners to sell their properties and buy new houses. Home values in 20 major U.S. cities declined 18 percent in October, the fastest rate on record, according to the S&P/Case-Shiller index released last month.

Los Angeles-based KB Home, the fourth-largest U.S. homebuilder, this month reported a fourth-quarter loss exceeding analysts’ estimates and predicted more pain for the housing market in 2009. It took a charge of $265.9 million to write down inventory and land it no longer intends to build on.

"The housing industry continues to confront unprecedented downward pressure," Chief Executive Officer Jeffrey Mezger said in a Jan. 9 conference call with analysts and investors. "These conditions persist nationally with no visible signs of lessening in the near term."

The combination of slumping prices and rising foreclosures is dragging down optimism among construction companies.

The National Association of Home Builders/Wells Fargo index of builder confidence in January, due Jan. 21, probably held at 9, a record low, according to the survey median. An index reading below 50 means most respondents view conditions as poor.

30-year fixed mortgage falls below 5 percent
Obama’s economic adviser Lawrence Summers said last week the president elect, who takes office today, intends to use between $50 billion and $100 billion of the remaining half of the $700 billion bank-bailout fund enacted last year to address the foreclosure crisis.

Even record-low mortgage rates haven’t been enough to spur a turnaround in the market. The average U.S. rate on a 30-year fixed mortgage fell below 5 percent this month for the first time, dropping to 4.96 percent, Freddie Mac said in a report last week.

Still, the credit freeze is making banks reluctant to lend to prospective or existing homeowners as mortgage losses mount.

Also this week, the number of Americans filing first-time claims for jobless benefits, due from the Labor Department on Jan. 22, probably rose to 543,000 last week from 524,000 a week earlier. Obama is proposing a two-year recovery plan that includes about $300 billion in tax cuts for individuals and businesses and infrastructure spending aimed at creating or saving 4 million jobs. House lawmakers are considering fiscal-stimulus legislation costing about $825 billion.