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.S. Housing Starts Fell 7.4% in April to 1.849 Million Rate
May 16 (Bloomberg) -- Builders in the U.S. broke ground on the fewest homes since November 2004 as higher borrowing costs eroded demand, a government report showed.

Housing starts fell 7.4 percent in April, the third straight drop, to an annual rate of 1.849 million from 1.996 million. Building permits, a sign of future construction, fell 5.4 percent to an annual rate of 1.984 million, the Commerce Department said today in Washington.

Builders including Hovnanian Enterprises Inc. are trimming sales forecasts as inventories of unsold homes swell amid higher prices and mortgage rates. Home construction, a source of strength for the economy for the past five years, will limit growth in coming months, economists said.

The decline in starts ``indicates builders are recognizing that the market is cooling,'' Nigel Gault, director of U.S. research at Global Insight Inc. in Lexington, Massachusetts, said before the report. ``By the end of the year housing construction will subtract from economic growth, perhaps quite substantially.''

Economists expected housing starts to fall to an annual rate of 1.95 million in April from the prior month's originally reported 1.96 million, according to the median of 62 forecasts in a Bloomberg News survey. Estimates ranged from 1.88 million to 2.1 million.

Permits were forecast to fall to a 2.04 million pace, from 2.094 million, according to the median estimate. Projections ranged from 1.995 million to 2.12 million.

Starts of single-family homes fell 5.6 percent last month to a 1.535 million-unit rate. Builders started work on multifamily homes such as townhouses at an annual rate of 314,000, a decrease of 15 percent.

Regions

Starts fell in two of four regions. They decreased 9.7 percent in the West to an annual rate of 446,000. They rose 16 percent in the Midwest to 349,000, and fell 16 percent in the South to 863,000. Starts rose 9.1 percent in the Northeast to 191,000.

The number of homes under construction fell 1.6 percent last month to a 1.388 million pace from 1.411 million. Housing completions fell 6.6 percent, the biggest decline since June 2002, to an annual rate of 2.077 million. The number of housing units authorized, but not yet started, fell 0.5 percent to 232,500.

Confidence among U.S. homebuilders dropped to the lowest level in almost 11 years this month, according to a survey released yesterday by the National Association of Home Builders.

Higher mortgage rates are cutting demand for new homes. The average rate on a 30-year mortgage rose to 6.59 percent during the week ended May 5, the highest since June 2002, according to Freddie Mac, the second-biggest purchaser of U.S. mortgages. The 30-year rate reached a record-low 5.21 percent in June 2003, and has averaged 7.49 percent since 1990.

Decline Forecast

The National Association of Realtors forecast new home sales this year will fall 12 percent to 1.134 million from a record 1.283 million last year.

Slowing sales have caused inventories to pile up. The number of new homes for sale at the end of March was a record 555,000, the Commerce Department said April 26.

Toll Brothers Inc., the largest U.S. builder of luxury houses, said fiscal second-quarter orders fell 33 percent. The Horsham, Pennsylvania-based company on May 5 lowered its 2006 sales forecast, marking the third reduction in Toll's forecast since November.

Hovnanian Enterprises Inc., New Jersey's largest homebuilder, on May 1 cut its earnings forecast for the fiscal second quarter. Earnings were hurt by production delays, a slowdown in sales, higher cancellations, price reductions and higher costs, the Red Bank, New Jersey-based company said.

``Clearly the market has slowed,'' Ara Hovnanian, chief executive officer of Hovnanian Enterprises, said in an interview the following day.

The Standard & Poor's 500 Homebuilding index, comprised of the stocks of five builders, has fallen about 21 percent this year, the third-worst performance among industry groups in the S&P 500.

Higher incomes will keep homes sales from plunging, economists said. Hourly earnings last month were up 3.8 percent from April 2005, the biggest gain since August 2001, a Labor Department repot showed last week.

``The housing market will not crash by any means but it will weaken considerably,'' Richard Curtin, director of the University of Michigan's Survey of Consumers, said in a May 12 interview. A survey by the university showed plans to buy a home fell to their lowest level since 1990 this month.

The Federal Reserve, which last week raise interest rates a 16th time in a row, predicts that a cooling housing market will help reduce economic growth to a ``sustainable'' pace.

The U.S. economy expanded January through March at an annual rate of 4.8 percent, the fastest in more than two years. Economists expect growth to a 2.9 percent pace by the end of the year, based on the median estimate in a Bloomberg survey this month.



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