Housing starts in the U.S. plunged more than forecast to a 14-year low in September, keeping the real-estate market the Federal Reserve's top concern. The 10.2 percent decrease to an annual rate of 1.191 million followed a 1.327 million rate the prior month, the Commerce Department said today in Washington. Building permits fell 7.3 percent to a 1.226 million pace. Higher mortgage costs and stricter lending rules will further depress home sales and feed the decline in construction that threatens to stall economic growth. The Fed may cut interest rates again this year as the pall cast by housing persists into 2008, economists said.
"Housing continues to get worse and worse,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. "The contraction will go on into at least the middle of next year. There are certainly going to be more rate cuts by the Fed.'' Prices paid by consumers rose 0.3 percent in September as food and energy costs climbed, the Labor Department also reported. The core measure, which excludes food and energy costs, rose 0.2 percent for a second month in line with forecasts.
Treasury securities rose following the reports and stock- market futures held earlier gains. The yield on the benchmark 10- year note fell to 4.63 percent at 8:56 a.m. in New York, compared with 4.65 percent late yesterday. The number of housing starts was the lowest since March 1993. The decline was led by a plunge in construction of townhouses, apartments and condominiums.
Survey Forecasts
Starts were projected to fall to a 1.28 million unit pace, from an originally reported 1.331 million in August, according to the median forecast of 79 economists polled by Bloomberg News. Estimates ranged from 1.2 million to 1.35 million.
Permits, a sign of future construction, were forecast to drop to 1.285 million, according to the survey median, with projections ranging from 1.23 million to 1.32 million.
Construction of single-family homes fell 1.7 percent to a 963,000 rate, today's report showed. Work on multifamily homes slumped 34 percent to an annual rate of 228,000.
The decrease in starts was led by a 28 percent drop in the Midwest. Construction fell 12 percent in the South and 10 percent in the West. Starts jumped 45 percent in the Northeast.
The number of homes under construction fell 1.4 percent to a 1.114 million pace and the number of properties completed dropped 8.2 percent to an annual rate of 1.391 million.
Housing units authorized, but not yet started, decreased 4.2 percent to 187,400, today's data showed.
Significant Drag
Housing will be a "significant drag'' on the economy into next year as "conditions in mortgage markets remain difficult,'' Fed Chairman Ben S. Bernanke said Oct. 15.
Policy makers lowered the benchmark rate by a half point to 4.75 percent on Sept. 18. The decision followed the August turmoil in financial markets that triggered concern over rising defaults by subprime mortgage borrowers, or those with poor or limited credit history. "Risk-management considerations also played a role in the decision, given the possibility that the housing correction and tighter credit could presage broader weakening in economic conditions that would be difficult to arrest,'' Bernanke said.
The majority of investors and economists project the Fed will trim rates again, probably in December, and some are betting on a cut at a meeting later this month. The National Association of Home Builders/Wells Fargo index of builder confidence plunged to a record low 18 in October, the Washington-based association said yesterday. Levels lower than 50 mean most respondents view conditions as poor. The index averaged 42 last year.
More Cancellations
Builders are reeling from
Source: Bloomberg.com