une 17 (Bloomberg) — Builders in the U.S. broke ground in May on the fewest houses in 17 years, signaling declines in construction still represent the biggest risk to the economy.
Housing starts fell 3.3 percent to a 975,000 pace from a revised 1.008 million in April, the Commerce Department said today in Washington. The reading was below economists’ forecasts and the lowest since March 1991. Building permits, a sign of future construction, fell 1.3 percent to a 969,000 rate.
Rising foreclosures, higher mortgage rates and declining property values threaten to keep home sales depressed in coming months, discouraging builders from starting new projects. Spending on residential projects may continue to be a drag on growth the rest of this year as builders try to work off excess inventories.
“The downtrend is still in place,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Inventories are still very high, prices are still coming down. None of that argues for a turnaround yet.”
A separate report showed that U.S. producer prices climbed more than forecast as fuel and food costs jumped. The producer- price index rose 1.4 percent in May from April, the biggest increase since November. The Labor Department’s figures also showed that prices rose 0.2 percent excluding food and energy.
Treasuries, Dollar
Treasuries rose after the figures, while the dollar was little changed. Benchmark 10-year note yields dropped to 4.21 percent at 9:11 a.m. in New York, from 4.27 percent late yesterday. The dollar traded at $1.5492, from $1.5477.
Economists forecast the pace of starts would decline to 980,000, from a previously reported 1.032 million for April, according to the median projection of 72 economists surveyed by Bloomberg News. Estimates ranged from 875,000 to 1.06 million.
Building permits were forecast to fall to 960,000 from 982,000.
Starts were down 32 percent compared with May 2007.
Work on single-family homes decreased 1 percent to a 674,000 pace, also the fewest since 1991, Commerce said. Construction of multifamily homes, such as townhouses and apartment buildings, dropped 8 percent to an annual rate of 301,000 in May.
Starts decreased in three of four regions, led by a 25 percent drop in the Midwest. Construction fell 10 percent in the West and 4.4 percent in the South. Starts increased 62 percent in the Northeast, led by a rebound in multifamily projects.
Residential construction has subtracted from economic growth every quarter since the first three months of 2006, culminating in a 25.5 percent drop in the first quarter that was the largest since 1981.
Confidence Slides
Builders’ confidence matched a record low in June. The National Association of Home Builders/Wells Fargo sentiment index fell to 18 from 19 in May, the group said yesterday. While gauges of present and future sales held at May’s pace, the measure of buyer traffic dropped.
As property values have fallen, some homeowners have become trapped in mortgages they can’t afford and that is leading to an increase in foreclosures. Banks repossessed twice as many homes in May and foreclosure filings rose 48 percent from a year ago, RealtyTrac Inc. said last week.
One in every 483 U.S. households either lost a home to foreclosure, received a default notice or was warned of a pending auction, RealtyTrac said.
The five largest homebuilders have reported a combined $3.4 billion in losses in their most recent quarters as new-home sales fell. Stricter lending standards and rising foreclosures are reducing demand for homes.
Hovnanian, Toll
Hovnanian Enterprises Inc., New Jersey’s largest homebuilder, reported its seventh consecutive quarterly loss on June 3 and said the value of its land continued to decline. Toll Brothers Inc., the largest U.S. builder of luxury homes, reported its third consecutive quarterly loss the same day.
The slump in housing has caused job losses in construction as well as in other areas including finance. Builders have cut payrolls by 208,000 workers so far this year, according to Labor Department data.
Economists surveyed by Bloomberg earlier this month forecast the unemployment rate would end the year at 5.6 percent, the highest since June 2004.
“Reports of softer demand for housing-related products remained widespread,” the Federal Reserve said last week in its regional Beige Book economic survey. “Many districts cited higher production costs and cuts in employment that contacts attributed to slumping home sales and construction.”
The Fed report also said economic growth was “generally weak” in April and May. Central bank policy makers are scheduled to next meet to discuss the direction of the benchmark interest rate on June 24-25. Traders project the Fed will keep the rate unchanged at 2 percent, the first pause since August.
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