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LATEST US DATA – Housing starts up 3% in Oct, permits down 6.6%

Building permits fall to 1.178m unit pace, the lowest level in 14 years

(WASHINGTON) US home construction starts were up 3 per cent in October, the biggest monthly gain in eight months but building permits were down 6.6 per cent to a level not seen in 14 years, a government report yesterday showed.

The Commerce Department said that housing starts set at an annual pace of 1.229 million units in October from a 1.193 million unit pace in September.

It was the biggest monthly increase since February and came after starts tumbled 11.4 per cent the prior month.

Economists were expecting to see a slight decrease in starts to a 1.17 million unit pace from the initially reported 1.191 million pace.

Building permits fell 6.6 per cent in October to a 1.178 million unit pace. That was the lowest level since July 1993 and well below the 1.200 million unit level economists were expecting.

Construction of single-family homes fell 7.3 per cent to the lowest since October 1991 but multi-family home building surged 44 per cent.

Sales of single-family homes are dropping as potential buyers wait for prices to fall even more and some banks make it more difficult to get mortgages.

Demand is declining as fast as construction, preventing builders from trimming inventories and suggesting that the real estate recession will linger into 2008.

‘The meltdown in residential construction will extend for many more months and represents a serious drag on economic growth,’ Robert Dye, senior economist at PNC Financial Services Group in Philadelphia, said before the report.

Permits were forecast to drop to a 1.2 million pace, according to the survey median, with projections ranging from 1.1 million to 1.324 million.

Construction of single-family homes dropped to a 884,000 pace while work on multi-family homes rose to a 345,000 annual rate.

The increase in starts was led by a 21 per cent jump in the Mid-west. Construction rose 8.5 per cent in the Northeast and 5.8 per cent in the West. Starts fell 4.6 per cent in the South.

A report on Monday added to evidence that housing was far from recovery. The National Association of Home Builders/Wells Fargo confidence index held at a record low of 19 in November.

Toll Brothers Inc, the largest US luxury homebuilder, said on Nov 8 that fourth-quarter revenue fell 36 per cent and the cancellation rate rose to the highest ever.

‘We do think that this is worse than it was in ’88 through ’90,’ chairman Robert Toll said on a conference call. ‘We can’t predict how long this down period will last.’

Declines in home construction have reduced growth since the start of 2006 and detracted 1.1 percentage points in the third quarter.

Homebuilding will drop at a 22 per cent annual pace this quarter, the most since the last three months of 1981, according to a forecast by economists at Lehman Brothers Holdings Inc.

Foreclosures doubled in September from a year earlier as sub-prime borrowers struggled to make payments on adjustable-rate mortgages, RealtyTrac Inc said on Oct 11.

Rising foreclosures and falling sales are adding to inventories and pushing down prices.

The Case-Shiller index of home prices in 20 major cities declined 4.4 per cent in the 12 months though August, the most since records began in 2001.

 

Source: Reuters, Bloomberg (Business Times 21 Nov 07)

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