U.S. Economy: Permits Jump, Signal Construction Gains
Building permits in the U.S. unexpectedly jumped in December, signaling gains in housing will be sustained into 2010 after winter weather depressed construction at the end of last year.
Applications rose 11 percent to a 653,000 annual rate last month, the most since October 2008, the Commerce Department said today in Washington. Work began on houses at a 557,000 pace, down 4 percent from November.
Builders are probably anticipating sales will increase after the government extended a tax credit for first-time buyers through June and expanded it to include some current owners. Record foreclosures and unemployment near a 26-year high represent hurdles that may prevent the industry from strengthening much further.
“After a disappointing December, homebuilding may pick up in the current quarter,” said Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “Housing has formidable headwinds to overcome, led by foreclosures and double-digit unemployment.”
A report from the Labor Department showed wholesale prices increased 0.2 percent after jumping 1.8 percent the prior month, indicating the economy is recovering without the immediate threat of inflation. Excluding food and fuel, so-called core prices were unchanged.
Stocks Fall
Stocks dropped on disappointing earnings from International Business Machines Corp. and Morgan Stanley. The Standard & Poor’s 500 Index dropped 1.1 percent to 1,138.04 at 4:05 p.m. in New York. The S&P Homebuilder Supercomposite fell 1.2 percent. Treasury securities rose.
Starts were projected to fall to a 572,000 pace last month, according to the survey median. Projections ranged from 495,000 to 630,000. The government revised November’s reading up to a 580,000 rate from the 574,000 previously estimated.
For all of 2009, builders broke ground on 553,800 houses, the fewest since records began in 1959. The annual number was down 39 percent from 2008’s 905,500, which was the second-lowest ever.
Construction of single-family houses decreased 6.9 percent to a 456,000 rate, while permits increased 8.3 percent last month. Work on multifamily homes, such as townhouses and apartment buildings, climbed 12 percent to an annual rate of 101,000, a six-month high.
Regional Breakdown
Three of four regions showed a decline in starts in December, led by a 19 percent drop in the Northeast. The South showed a 3.3 percent gain.
Weather may have played a role in depressing December housing starts, economists said. Last month was the 14th coldest December and 11th wettest in 115 years of record keeping, according to the National Climatic Data Center, in Asheville, North Carolina.
“When it’s cold and rainy you can’t pour concrete and lay foundations, but you can get a permit,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts, who forecast a drop in starts and an increase in permits. “Overall, this is a really good report,” he said, adding the housing recovery “has legs.”
Foreclosure Estimates
At the same time, headwinds remain. Rising foreclosures are adding to inventory and may discourage builders. A record 3 million U.S. homes will be repossessed by lenders this year as high unemployment and depressed home values leave borrowers unable to make their house payment or sell, according to a RealtyTrac Inc. forecast on Jan 14.
Last year there were 2.82 million foreclosures, the most since RealtyTrac began compiling data in 2005.
President Barack Obama on Nov. 6 extended an $8,000 first- time buyer credit that was due to expire at the end of the month and expanded it to include current homeowners. The extension covers closings through June as long as contracts are signed by the end of April. Still, the measure may have pulled sales forward, depressing demand in the second half of the year.
Sales of new houses dropped 11 percent in November, the month the government’s tax credit was due to expire. A jump in purchases of existing homes pushed total sales up to a 6.895 million annual pace, the most since March 2007.
Less Confidence
Confidence among U.S. homebuilders unexpectedly dropped in January to the lowest level since June, the National Association of Home Builders/Wells Fargo said yesterday.
KB Home, the Los Angeles-based homebuilder that sells to first-time buyers, is among homebuilders struggling. The company last week reported a pretax loss of $91 million on declining revenue for the fiscal fourth quarter that ended Nov. 30
KB Home’s orders rose 12 percent to 1,446 from 1,296 in the year-earlier quarter, while completed sales dropped 22 percent to 3,042, according to the report. The average price declined 12 percent to $203,400.
KB Home is “not going to make money in the first quarter” and plans to “restore profitability” in the second half of 2010, Chief Executive Officer Jeffrey Mezger said Jan. 12 in a conference call with analysts and investors.
Source: Bloomberg News, By Bob Willis
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