[NYTr] Collapsing Economy: US Housing Starts Drop, Bldg Permits at 14-Yr Low

[All the News That Doesn't Fit]

Bloomberg - Dec 18, 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMRHPa_9hetE&refer=home


U.S. Economy: Housing Starts Drop, Permits Reach 14-Year Low

By Bob Willis

Dec. 18 (Bloomberg) -- Housing starts fell in the U.S. and building 
permits slid to a 14-year low in November, providing no evidence that 
the residential real-estate market is stabilizing.

Builders broke ground on 1.187 million new homes at an annual rate, the 
Commerce Department said in Washington. While that was better than 
forecast, economists said the level of permits, at 1.152 million, shows 
that starts are likely to fall further.

A near-record number of properties on the market and the prospect that 
prices will keep falling suggests the housing slump will extend into 
2008. The decline in starts indicates the housing recession will 
subtract even more from economic growth this quarter than the 1 
percentage point impact in July to September.

``We are a good way off from the bottom in the housing market,'' said 
Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New 
York. ``It's not a very good outlook. It will be a close scrape'' to 
avoid a recession next year, he said.

Deutsche Bank economists put the odds of recession at 35 percent. They 
had forecast a decline in November housing starts to a 1.19 million
pace.

Ten-year Treasury notes pared losses after the report and later rose. 
Ten-year yields dropped to 4.12 percent at 11:12 a.m. in New York, from 
4.15 percent late yesterday and as high as 4.18 percent earlier.

Fed Mortgage Rules

The Federal Reserve today proposed new rules on subprime lending after 
surging foreclosures added to the inventory of homes for sale and 
worsened the slide in prices.

``Mortgage-market discipline has in some cases broken down and the 
incentives to follow prudent lending procedures have, at times, 
eroded,'' Fed Chairman Ben S. Bernanke said today in a statement. The 
central bank's proposed new rules included a ban on low-documentation 
loans and limits on penalties for borrowers trying to refinance their
debts.

The drop in starts was led by a 5.4 percent decline in construction of 
single-family homes to an 829,000 annual pace that was the lowest since 
1991. Single-family starts have been down for eight consecutive months, 
the longest string since record began in 1959. Building of townhouses, 
apartments and condominiums rose 0.6 percent, the second consecutive 
increase.

Starts Forecast

Starts were projected to fall to a 1.176 million unit pace, from an 
originally reported 1.229 million in October, according to the median 
forecast of 70 economists polled by Bloomberg News. Estimates ranged 
from 1.09 million to 1.25 million.

Permits, which declined to the lowest level since June 1993, were 
forecast to drop to 1.15 million, according to the survey median. 
Projections ranged from 1.1 million to 1.22 million.

Three of four regions showed a drop in construction, led by a 16
percent slump in the Northeast. Starts fell 6.9 percent in the West and
1.5 percent in the Midwest. Building rose 0.3 percent in the South.

A report yesterday added to evidence that housing is far from
recovering as 2007 comes to a close. The National Association of Home 
Builders/Wells Fargo confidence index held at a record low of 19 for a 
third month in December.

Housing starts in November were 48 percent below their Jan. 2006 peak, 
matching the drop in sales of new homes from the record reached in July 
2005. Sales and construction are likely to continue falling as long as 
inventories hold near record levels and prices tumble, economists said.

Builder Losses

Toll Brothers Inc., the largest U.S. luxury-home builder, Dec. 6 
reported its first quarterly loss in 21 years and said the housing
slump is the worst the company has seen in decades.

``Broader concerns about the nation's economy have magnified worries 
about potential price declines in the housing market,'' Chairman and 
Chief Executive Officer Robert Toll said on a conference call.

Homebuilder stocks rose today as equities climbed for the first time in 
three days. The Standard and Poor's Supercomposite Homebuilding Index
of the 15 largest homebuilders was up 3.8 points, or 1.2 percent, at
310.9 at 2:42 p.m. in New York.

Declines in home construction have reduced growth since the start of 
2006. Homebuilding will drop another 25 percent to a trough of fewer 
than 1 million by the third quarter of 2008, according to a forecast by 
economists at Lehman Brothers Holdings Inc.

No Immediate Recovery

``The momentum in the housing market still is downward,'' said David 
Seiders, chief economist at the National Association of Home Builders, 
at a housing conference in Washington Dec. 3. ``Housing starts, given 
the inventory overhang, probably won't turn up until maybe the third 
quarter of next year.''

The housing recession has taken a second leg down since subprime 
mortgage turmoil in August led to a worldwide credit shortage. In the 
third quarter, new foreclosures hit an all-time high, the Mortgage 
Bankers Association said in a report Dec. 6, meaning more homes will be 
piling up on the market.

Falling home prices have made Americans hesitant to spend. Retailers, 
enduring their worst holiday season since 2002, posted the smallest 
weekly sales gain in two months. Purchases at stores open more than a 
year increased 2.1 percent in the week through Dec. 15, the 
International Council of Shopping Centers and UBS Securities LLC said 
today in a statement.

Moving to contain the housing damage, President George W. Bush
announced a plan this month to freeze rates for five years on some
variable rate mortgages and provide assistance to as many as 1.2
million homeowners. The proposal wasn't universally embraced.

No Turnaround

``At best, it may stop some of the hemorrhaging of the housing market, 
but it doesn't necessarily turn things around,' Nicolas Retsinas, 
director of Harvard University's Joint Center for Housing Studies in 
Cambridge, Massachusetts, said in an interview earlier this month.
``The fundamental problem with housing is oversupply.''

Home prices in the U.S. fell 4.5 percent in the third quarter from a 
year earlier, the most in at least two decades, according to the 
S&P/Case-Shiller home price index released Nov. 27. Lehman Brothers is 
forecasting prices to fall at least 15 percent from peak to trough.