Housing Starts in U.S. Probably Dropped to 17-Year Low in July
U.S. builders probably broke ground in July on the fewest houses in 17 years, signaling the residential-construction slump will continue to hurt growth, economists said before a government report today.
Housing starts plunged 9.9 percent to an annual rate of 960,000 after a 1.066 million pace the prior month, according to the median forecast of 77 economists in a Bloomberg News survey. A separate report may show wholesale prices probably rose at a slower pace in July as fuel expenses peaked.
Stricter lending rules, rising borrowing costs, falling property values and record foreclosures will further depress home sales and cause builders to keep retrenching. Inflation pressures are likely to ease as the downturn in housing, loss of jobs and credit crisis weaken the economy this year and into 2009.
“The supply of housing continues to be cut in response to the still relatively high inventories of unsold homes,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts. “This will continue to generate a large negative drag on overall growth in the second half of 2008.''
The Commerce Department will release starts figures at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from 875,000 to 1.09 million.
Also at 8:30 a.m., the Labor Department may report the producer price index climbed 0.6 percent in July after jumping 1.8 percent in June, according to the survey median. Prices excluding food and fuel probably rose 0.2 percent for a third month.
Permits May Drop
Commerce's housing figures may also show building permits, a sign of future construction, fell 15 percent to a 970,000 annual pace, economists forecast online payday loan.
A change in New York City's building code that took effect July 1 caused housing starts and permits to unexpectedly surge in June as builders hurried to break ground ahead of the new regulations. The magnitude of the July drop may reflect, in part, a payback.
Underneath the gyrations, demand is weakening. Sales of existing homes fell to a 10-year low in the second quarter, according to the National Association of Realtors. A third of all sales were foreclosures or “short sales,'' in which lenders take a loss on a property.
Financing has also become scarce, a quarterly survey of banks by the Federal Reserve showed. Three-fourths of the loan officers polled reported they tightened standards on prime mortgage loans, up from the April survey. Lending rules on non- traditional loans were also toughened.
Mounting Losses
The five largest U.S. homebuilders reported a combined $1.08 billion in losses in their most recent quarters.
Builders are pessimistic as losses mount. The National Association of Home Builders/Wells Fargo's sentiment index yesterday showed optimism held at a record low in August for a second month.
Still, construction companies are making some headway in reducing the supply glut. The number of new homes for sale dropped in June by the most in four decades.
Some housing-related firms are faring better. Lowe's Cos., the world's second-largest home-improvement retailer, yesterday said full-year profit may fall less than it had anticipated.