Sept. 18 (Bloomberg) -- Builders began work on fewer U.S. homes than projected in August and applications for future work declined more than forecast, underscoring the risk that higher mortgage rates pose for the real-estate rebound.
Housing starts rose 0.9 percent to a 891,000 annual rate, following the prior month’s 883,000 pace that was weaker than previously estimated, a Commerce Department report showed today in Washington. The median estimate of 83 economists surveyed by Bloomberg called for 917,000. Permits dropped 3.8 percent to a 918,000 pace, showing a lack of drive heading into this month.
The run-up in borrowing costs, were it to be sustained, may slow the housing recovery that’s been a mainstay of the expansion, even as builders such as Hovnanian Enterprises Inc. say it is just a temporary restraint. Federal Reserve officials meeting today are assessing whether the economy is strong enough to warrant scaling back monthly asset purchases.
Housing starts do “seem to have lost momentum, but we see it as a temporary slowdown,” David Sloan, senior economist at 4Cast Ltd. in New York, and the second-best forecaster of housing starts in the past two years, according to data compiled by Bloomberg. “Higher rates are a restraint on the housing recovery, but won’t derail it.” Sloan projected a 890,000 pace for August housing starts.
Stock-index futures trimmed earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in December rose less than 0.1 percent to 1,699 at 8:45 a.m. in New York.
Estimates for starts in the Bloomberg survey ranged from 880,000 to 980,000. The prior month was revised down from a previously reported 896,000 pace. Activity in June was also weaker than last estimated.
Permits were projected to ease to a 950,000 pace from 954,000, according to the survey median.
Construction of single-family houses climbed 7 percent to a 628,000 rate, the most since February, from 587,000 the prior month.
Work on multi-family homes, such as townhouses and apartment buildings, dropped 11.1 percent to an annual rate of 263,000.
Three of four regions showed a decline last month, led by a 10.9 percent slump in the West, today’s report showed. Starts climbed 12 percent in the South, the largest market.
Sentiment in the homebuilding industry held in September at the highest level in almost eight years, figures showed yesterday. The National Association of Home Builders/Wells Fargo index of builder confidence registered 58 this month, matching August’s revised reading as the strongest since November 2005.
Faster hiring and more widespread access to credit is needed to help foster bigger gains in demand. At the same time, mortgage costs that are still near historically low levels may underpin demand. In addition, rising prices may keep boosting profits for builders.
Residential real estate “increased moderately,” helping to contribute to the economic expansion from early July through late August, the Fed said in its Beige Book survey released Sept. 4.
The rate on 30-year home loans averaged 4.57 percent in the week ended Sept. 12, close to the highest level since July 2011, according to data from McLean, Virginia-based Freddie Mac. The rate, which had been as low as 3.81 percent at the end of May, has been rising since Fed Chairman Ben S. Bernanke that month indicated the central bank may slow its purchases of government and mortgage bonds.
The advance in mortgage costs is unlikely to halt the nation’s housing recovery, Red Bank, New Jersey-based Hovnanian said. The company reported a profit for its fiscal third quarter as net contracts climbed 1.8 percent and the contract backlog, an indication of future sales, jumped 18 percent to 2,893 homes.
The company is confident any hesitancy from its customers caused by the jump in borrowing costs “will be a temporary bump in the road to housing recovery,” Chief Executive Officer Ara Hovnanian said on a Sept. 9 conference call with analysts.
Bloomfield Hills, Michigan-based PulteGroup Inc. expects the run-up in borrowing costs will vary across consumer segments, James Zeumer, head of investor relations, said on a Sept. 10 teleconference. For first-time buyers, a half- percentage-point rise in interest rates means “there will be some of them that will be out of the game,” he said, while the move-up buyers “have a little bit more flexibility.”
--With assistance from Ainhoa Goyeneche in Washington. Editor: Carlos Torres
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