November 20, 2007 / 1:33 PM / 10 years ago

Housing starts up but trend still lower

WASHINGTON (Reuters) - Groundbreaking for U.S. housing rebounded in October but permits for future building hit a 14-year low, indicating the grim market for home construction will likely continue to worsen.

The Commerce Department said on Tuesday housing starts rose 3 percent to an annual pace of 1.229 million units in October. The increase, which followed an 11 percent plunge in September, reflected a bounceback in groundbreaking for multifamily dwellings and failed to convince economists that things are improving in the housing sector.

“The bottom line is that the modest October increase in housing starts is likely to be a brief interlude in the ongoing downtrend in construction activity,” said Stephen Stanley, economist at RBS Greenwich Capital.

Groundbreaking for single-family homes, the biggest category of home building, fell 8 percent to the lowest rate in 16 years.

“The housing market is flat on its back,” said Joel Naroff, president and chief economist of Naroff Economic Advisors in Holland, Pennsylvania. “Only a sharp increase in multifamily activity kept starts from falling again and that segment of the market is not going to lead us out of the slump.”

Building permits, an indication of future activity, fell 6.6 percent in October to a 1.178 million unit pace. That was the lowest level since July 1993 and below the 1.2 million unit level economists were expecting.

For the 12-month period ended in October, housing starts were down 16.4 percent. Permits were down 24.5 percent.

“We have not hit a bottom (in housing). We need to see starts fall to a 1 million unit rate, or roughly a 20 percent drop from current levels, before building activities stabilize. And we need to see that rate for about one to two years,” said Keith Hembre, chief economist at FAF Advisors in Minneapolis.

    Adding to the dire housing outlook, D.R. Horton Inc (DHI.N), the largest U.S. home builder, on Tuesday reported a quarterly loss after taking charges for the lower value of land and other housing-related inventory.

    The charges were significantly below what some analysts had expected.

    In addition, Freddie Mac FRE.N, the nation’s second-largest guarantor of home mortgages, announced that it set aside $1.2 billion in the third quarter to cover bad home loans and posted a $2 billion net loss, forcing it to search for ways to raise capital.

    (Additional reporting by Richard Leong, Euan Rocha and Ilaina Jonas in New York and Patrick Rucker in Washington)

    Reporting by Joanne Morrison; Editing by Tom Hals

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