US housing starts rebound

Housing starts in the U.S. unexpectedly snapped the longest streak of declines in 18 years in February, adding to signs that the pace of the economy's decline may be easing.

Work began on 583,000 homes at an annual rate, a 22% rise from January, the Commerce Department said in Washington today. The jump was influenced by warmer weather and an 82% surge in starts on condominiums, apartments and townhouses that's unlikely to be sustained, analysts said.

While the glut of unsold properties on the market means the housing industry's recession will probably continue for some time, economists said Tuesday's report indicates the worst of the contraction may have passed. Retail sales figures for February last week also indicated a slower rate of decline.

"You get the sense from a lot of the data coming out now that we're beginning to get to a bottom," Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Mass., said in an interview with Bloomberg Television. "We're not quite there yet."

A separate report showed producer prices rose 0.1% in February, less than the 0.8% gain in the previous month. On a year-on-year basis, wholesale prices fell 1.3%, with a 4% increase after stripping out food and energy costs.

Treasuries rose after the reports, with benchmark 10-year notes yielding 2.92% at 9:42 a.m. in New York, from 2.96% late Monday. The Standard & Poor's 500 Stock Index was down 0.4% at 750.78.

Building permits, a sign of future construction, rose less than starts, indicating construction may again slow. Developers are still contending with record foreclosures that depress prices and profits, and put pressure on the Federal Reserve, which meets today and Wednesday, and the Obama administration to solve the credit crisis.

Starts were projected to fall to a 450,000 annual pace, according to the median forecast of 71 economists surveyed by Bloomberg News. Estimates ranged from 400,000 to 500,000. January's starts were revised up to 477,000 from a previously estimated 466,000.

Permits, a sign of future construction, increased 3% to a 547,000 annual pace. They were forecast to drop to a 500,000 annual rate, according to the survey median.

Construction of single-family homes climbed 1.1% to a 357,000 rate, today's report showed. Work on multifamily homes, such as townhouses and apartment buildings, surged to a 226,000 pace from 124,000 in January.

The increase in starts was led by an 89% surge in the Northeast.

Fed policy makers will keep the benchmark interest rate close to zero following their two-day meeting and discuss additional measures to calm the credit crisis, economists said.

Chairman Ben S. Bernanke and his colleagues are examining whether to expand existing asset-purchase and lending programs or initiate fresh measures, such as buying Treasuries. The central also is purchasing Fannie Mae, Freddie Mac and Federal Home Loan Bank debt under a program aimed to reduce mortgage costs.

Reflecting the dismal outlook for homebuilding, the National Association of Home Builders/Wells Fargo's index of confidence held near a record-low in March, the group reported Monday.

Banks need to "go the extra mile" and keep credit flowing to businesses to prevent the economy from worsening, Treasury Secretary Timothy Geithner said in remarks at the White House Monday. The economy has lost 4.4 million jobs since the recession began in December 2007.

President Barack Obama has pledged a US$275-billion rescue to help keep as many as 9 million borrowers in their homes and trim foreclosures. His efforts also include a tax break of up to US$8,000 for first-time homebuyers that wouldn't require repayment.

For now, mortgage borrowers are hard-pressed. Foreclosure filings climbed 30% in February from a year earlier, and a total of 290,631 homes received a default or auction notice or were seized by the lender, according to RealtyTrac Inc., an Irvine, Calif.-based seller of default data.

The competition from foreclosed houses is hurting developers. Toll, the largest U.S. builder of luxury homes, this month reported its sixth consecutive quarterly loss while Hovnanian, N.J.'s largest homebuilder, had a 10th straight loss.

"We expect demand for all homes, both new and existing, to remain far below normalized levels," chief executive Ara Hovnanian said in a March 10 statement. He urged for more government help for homebuyers, citing a "difficult economic backdrop."

Still, the Red Bank, N.J.-based company said it contracted to sell 506 houses in February, the most in six months.

(prepared by Shobhana Chandra, Bloomberg/Financial Post