A record rate of foreclosures probably kept many U.S. home builders off the job last month, pushing the rate of groundbreaking for new homes to its lowest level in more than 17 years, a Reuters poll showed.
Housing starts in August are expected at an annual rate of 950,000 units, down from 965,000 in July, based on a median forecast of 78 analysts. It would be the lowest level since March 1991 when starts came in at a 921,000 unit pace.
"Home builders continue to cut housing supply in order to bring inventories down, a process that we expect will continue for several more months," Global Insight said in their research notes.
Permits for future groundbreaking, which give a clue to construction plans, are seen at a 930,000 unit rate in August, down from 937,000 units in July and also at its lowest level in more than 17 years.
"Competition from foreclosures should keep builders from increasing construction," said Lehman Brothers in their Housing Monitor. "We expect housing starts to bottom in the beginning of next year. This will continue to reduce inventory, bringing supply back to normal by the end of next year."
The data will be released by the Commerce Department at 8:30 a.m. EDT on Wednesday.
Tighter credit standards have made it more difficult for potential buyers to win financing and builders have cut activity sharply in an effort to whittle down a big glut of unsold homes.
U.S. Treasury Secretary Henry Paulson said on Monday that a correction in housing markets remained a key challenge.
"Until we stem the housing correction, until the biggest part of that is behind us and we have more stability in housing prices, we're going to continue to have turmoil in financial markets," he said at a White House briefing with reporters.
"I believe that there is a reasonable chance that the biggest part of that housing correction can be behind us in a number of months," Paulson said, adding, "I'm not saying two or three months, but in months as opposed to years."
The following is a selection of comments from economists:
MORGAN STANLEY
Forecast: Starts — 920,000 units
Starts are expected to be down nearly 5 percent, with a further pullback in the multi-family category leading the way. The key single-family component is expected to dip about 1.5 percent, which is close to the recent trend. We continue to believe that starts will bottom sometime about mid-2009.
RBS Greenwich Capital
Forecast: Starts — 930,000 units
Although there are signs that home sales may be starting to bottom, tight credit standards, rising unemployment, and falling home prices will continue to restrain housing demand. Moreover the inventory overhang, which is being exacerbated by heightened foreclosure activity, will further weigh on construction activity in the coming months.
WACHOVIA
Forecast: Starts — 960,000 units
While there are signs that residential construction is stabilizing, housing is unlikely to make a positive contribution to growth for several quarters as inventory levels of unsold and unoccupied homes remains elevated. We expect housing starts to fall in August as inventory levels remain bloated and homebuilder sentiment dropped to its lowest levels ever in July and August.
