Home starts weaker than forecast as Fed keeps stimulus

Fed’s View

“The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market,” Fed policy makers said today in announcing their intention to maintain stimulus.

Builder confidence remains high even as borrowing costs jump. Sentiment held in September at the highest level in almost eight years, figures from the National Association of Home Builders/Wells Fargo showed yesterday.

The advance in mortgage costs is unlikely to halt the nation’s housing recovery, Red Bank, New Jersey-based Hovnanian said. The company reported a profit for its fiscal third quarter as net contracts climbed 1.8% and the contract backlog, an indication of future sales, jumped 18% to 2,893 homes.

The company is confident any hesitancy from its customers caused by the jump in borrowing costs “will be a temporary bump in the road to housing recovery,” Chief Executive Officer Ara Hovnanian said on a Sept. 9 conference call with analysts.

Executives’ Outlook

Other companies aren’t as upbeat about the outlook. Fewer chief executive officers in the U.S. project a pickup in sales and capital spending in the next six months as the budget debate in Washington puts hiring plans on hold, a survey today showed. The Business Roundtable’s economic outlook index dropped to 79.1 in the third quarter from a one-year high of 84.3 in the previous three months, the Washington-based trade group said.

Thirty-two% of corporate leaders plan to boost payrolls, unchanged from the second quarter, the survey also showed. Half of the CEOs surveyed said the disagreement over the 2014 U.S. government budget and the debt ceiling was having a negative impact on hiring plans.

Faster hiring and more widespread access to credit are probably needed to help foster bigger gains in housing demand.

The weakness in construction and permits last month was concentrated in the more volatile multifamily area. Work on townhouses and apartment buildings dropped 11.1% to an annual rate of 263,000. The number of applications for future work declined 15.7%.

Single Family

Construction of single-family houses climbed 7% in August to a 628,000 rate, the most since February, from 587,000 the prior month. Permits for future projects climbed 3% to a 627,000 rate. The almost identical readings in the number of permits and of single-family starts last month leaves little scope for a pickup in construction this month.

Three of four regions showed a decline in housing starts last month, led by a 10.9% slump in the West, today’s report showed. New projects climbed 12% in the South, the largest market.

Bloomfield Hills, Michigan-based PulteGroup Inc. expects the run-up in borrowing costs will vary across consumer segments, James Zeumer, head of investor relations, said on a Sept. 10 teleconference. For first-time buyers, a half- percentage-point rise in interest rates means “there will be some of them that will be out of the game,” he said, while the move-up buyers “have a little bit more flexibility.”

www.bloomberg.com

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