New home builds fail to lift housing fears

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Construction of homes increased in the US last month, boosted by a jump in the number of developments with more than one house, but permits for future residential building as well as single-family housing starts showed no sign of ending their downward spiral.

The accelerating declines in home building since earlier in the year is posing a growing threat to US economic growth as falling construction hurts builders, suppliers and financers of home purchases, economists warn.

Home construction is most important element in the impact of housing on growth, but “the negative impact is accelerating ... it hasn’t reached its peak yet,” according to Brian Bethune, an economist at Global Insight. He estimates that homebuilding will act as a 1.5 per cent drag on growth in the next two quarters, up from 0.5 per cent earlier this year.

The Federal Reserve on Tuesday issued a downbeat forecast for the longer term growth of the US economy.

New housing starts rose 3 per cent in October, far stronger than the 3 per cent drop that economists had predicted. However, all of the new gains were made up by a 46 per cent rise in multi-family building that only partially offset last month’s 36 per cent drop.

The picture on housing beyond multi-family building remains unremittingly grim, with starts of new single family homes fell to a 16-year-low, dropping 7.3 per cent over the month and for the seventh month in a row. Meanwhile, building permits, which are an indicator of future housing activity, fell 6.6 per cent to their lowest level since 1993. Permits for single family homes are off 55 per cent since their peak in mid-2005 and are down 20 per cent since August.

House prices fell by 4.4 per cent in August in 20 major US cities according to the closely watched Case-Shiller index of house prices.

Efforts by homebuilders to shift inventories of new homes through resorting to massive price cuts and incentives have failed to encourage buyers, while tighter mortgage lending standards have made it harder for people to finance home purchases.

“The huge overhang of homes for sale, high cancellation rates and concern about impending foreclosures has left builders cutting production,” said Michelle Meyer, an analyst at Lehman Brothers.

The downbeat indications on housing came as DR Horton, the the largest US homebuilder by sales, said it made a loss in its fourth quarter and again wrote down the value of its unsold homes and land options.

“We are still sliding down wards in the supply and demand side,” said Mr Bethune. “We certainly haven’t seen any bottoming out.”

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