Housing Starts in U.S. Declined 5.9% in February (Update3)
By Shobhana Chandra
March 16 (Bloomberg) -- Housing starts in the U.S. fell in February as record snowfall in parts of the country hampered construction, while fewer building permits signaled demand is stagnating.
Builders broke ground on 575,000 homes at an annual rate last month, down 5.9 percent from January’s revised 611,000 pace that was higher than initially estimated, Commerce Department figures showed today in Washington. February starts reflected declines in the Northeast and South and compared with a median estimate of 570,000 in a Bloomberg News survey of economists.
Mounting foreclosures are making it harder to clear inventories, keeping pressure on prices and discouraging new construction. The economy has yet to create the sustained job growth that could invigorate housing demand and is one reason Federal Reserve policy makers will probably keep interest rates near zero after their meeting today.
The report “definitely reflects the severe weather effect,” said Ellen Zentner, senior U.S. macroeconomist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Housing has now got enough support that it has stabilized. With or without support, the housing recovery will be slow going.”
Starts on dwellings were projected to fall after a previously reported 591,000 in January, according to the median forecast of 71 economists surveyed by Bloomberg. Estimates ranged from 510,000 to 610,000.
Import Prices Decline
A separate report showed prices of goods imported into the U.S. declined more than anticipated, pointing to few signs of inflation pressure from abroad. The import price index fell 0.3 percent, the first decline in seven months, Labor Department figures showed today. Economists forecast a 0.2 percent drop, according to the median estimate in a Bloomberg survey.
Companies may be reluctant to raise prices as the world’s largest economy climbs out of the worst recession since the 1930s. Unemployment and tame inflation are among reasons Fed policy makers are expected to hold the benchmark rate on overnight loans between banks between zero and 0.25 percent today, according to the forecast of all 90 economists surveyed.
Stocks were little changed as investors waited for the Fed’s decision, due at about 2:15 p.m. in Washington. The Standard & Poor’s 500 Index rose 0.2 percent to 1,153.2 at 10:30 a.m. in New York. The 10-year Treasury note rose, pushing up the yield to down to 3.67 percent from 3.70 percent late yesterday.
Permits Decrease
Building permits, a sign of future construction, decreased 1.6 percent to a 612,000 annual rate after a 4.7 percent drop in January. Permits were forecast to decrease to a 601,000 annual pace, according to the survey median.
Construction of single-family houses dropped 0.6 percent to a 499,000 rate in February.
Work on multifamily homes, such as townhouses and apartment buildings, slumped 30 percent to an annual rate of 76,000, the lowest in four months.
The decrease in starts was led by a 16 percent decline in the South and a 9.6 percent drop in the Northeast. Starts rose 11 percent in the Midwest and 7.9 percent in the West.
The report bolsters the view of some economists that the weather played a bigger role in depressing employment last month. The economy lost 64,000 construction jobs in February, according to figures from the Labor Department released earlier this month. Overall employment fell by 36,000 workers, a smaller decline than anticipated, leading to speculation that the labor market is stabilizing.
The number of homes under construction in February declined 2.2 percent to a record-low 492,000, today’s report showed.
Builder Confidence
A report yesterday showed builder confidence unexpectedly declined in March as prospective-buyer traffic fell to a one- year low. The National Association of Home Builders/Wells Fargo’s index of builder confidence dropped for the third time in four months.
Fed policy makers will leave the benchmark lending rate unchanged at zero to 0.25 percent, where it’s been since December 2008, according to the median forecast in a Bloomberg survey. They’re also likely to stick to their timetable of completing their plan to purchase $1.25 trillion in mortgage- backed securities at the end of this month that was part of an effort to reduce borrowing costs and revive the housing market.
President Barack Obama in November extended a tax credit of as much as $8,000 for first-time homebuyers, and expanded it to some current owners. The extension covers closings through June as long as contracts are signed by the end of April.
Bigger gains in housing sales ultimately require a pickup in job creation. Unemployment may end the year at 9.5 percent, according to a Bloomberg monthly survey.
Hovnanian on Credit
Executives at Hovnanian Enterprises Inc., New Jersey’s largest homebuilder, are among those watching if demand will hold up after the incentive fades. The Red Bank, New Jersey- based company this month reported its first quarterly profit since 2006.
“With the tax credit for first time and repeat buyers expiring at the end of the second quarter, we too are interested to see if the positive momentum that we established can be sustained,” Chief Executive Officer Ara Hovnanian said on a conference call with investors on March 3. “We’re keeping a close eye on this as we head into the summer months.”
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