July 20 (Bloomberg) -- Housing starts fell in June to the lowest level since October as a slump in sales following the expiration of a government tax incentive caused U.S. builders to cut back. Work began on 549,000 houses last month, fewer than forecast by the median estimate of economists surveyed by Bloomberg News and down 5 percent from May, Commerce Department figures showed today in Washington.
The retreat following the end of government support shows it will be difficult for the industry that precipitated the recession to sustain a recovery. Mounting foreclosures will swell the supply of houses on the market and pressure prices, while prospective buyers shy away as a lack of jobs shakes confidence in the world’s largest economy.
“Housing will see a notable hangover over the next few months,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “We pulled sales forward with the credit, so it’s a matter of time as we allow demand to catch up. Jobs are the key.”
Economists forecast starts would fall to a 577,000 annual rate, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from 525,000 to 620,000.
Building permits, a gauge of future construction, rose 2.1 percent last month to a 586,000 pace, propelled by a 20 percent jump in multifamily applications that are often volatile. Permits for single-family housing, the biggest part of the market, dropped 3.4 percent to a 421,000 pace, the lowest since April 2009.
Year-Over-Year
Starts were down 5.8 percent from the same month last year, while permits decreased 2.3 percent.
Construction of single-family houses fell 0.7 percent to a 454,000 rate, a 13-month low, after the prior month’s 19 percent slump.
Work on multifamily homes, such as townhouses and apartment buildings, decreased 22 percent to an annual rate of 95,000.
The drop in housing starts followed the April 30 deadline to sign purchase agreements and become eligible to receive a government credit worth as much as $8,000.
All four regions of the country had a decrease in starts last month, led by an 11 percent slump in the Northeast and a 6.9 percent decline in the Midwest.
Builders have to contend with a growing supply of existing homes that is driving down home values as foreclosures rise. Home seizures jumped 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.
Growing Pessimism
Homebuilder sentiment fell in July to its lowest level since April 2009, according to the National Association of Realtors yesterday, and Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased in July to the lowest level in 11 months, the group reported last week.
Earlier in the month, the Labor Department reported private payrolls rose a less-than-forecast 83,000 in June and total jobs fell by 125,000, the first job decline this year. Economists surveyed by Bloomberg forecast unemployment will end the year at 9.5 percent, unchanged from the rate in June.
Homebuilders are seeing slowing orders. Lennar Corp.’s home sales were running 20 percent to 25 percent lower last month than a year earlier as the expiration of the tax credit sapped demand, Chief Executive Officer Stuart Miller said June 24.
“The new home market and housing in general still face serious headwinds from current economic and legislative conditions,” Miller said on a conference call with investors. “The prospect of additional delinquencies ahead continues to moderate this recovery as shadow inventory continues to be absorbed.”
