- (Bloomberg) -- Housing starts rebounded in February from
a nine-year low, easing concern that the U.S. real-estate slump will worsen
and threaten the economic expansion.
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- Builders broke ground on new homes at an annual rate
of 1.525 million last month, up 9 percent from the prior month and more
than economists forecast, the Commerce Department said today in Washington.
Building permits fell 2.5 percent.
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- The numbers eased speculation that climbing defaults
on subprime mortgages would put additional homes on the market, leading
builders to halt more projects and fire workers. At the same time, swings
in the monthly figures don't convey the stability desired by Federal Reserve
policy makers, who meet today and tomorrow to set interest rates.
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- ``We aren't getting any worse, but we aren't getting
much better either,'' said Brian Jones, an economist at Citigroup Global
Markets Inc. in New York. ``The quicker we get the inventory problem behind
us, that sets a platform for an improvement in the latter half of the year.''
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- Speculation that the housing recession will deepen has
mounted in the past month as delinquencies and foreclosures on subprime
loans increased. Countrywide Financial Corp., the biggest mortgage provider,
tightened standards and the Fed has warned lenders to be sure borrowers
can repay debts.
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- Economists polled by Bloomberg News had forecast starts
to rise to a 1.45 million pace, from an originally reported 1.408 million,
according to the median estimate. Forecasts of starts ranged from 1.3 million
to 1.55 million.
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- `Set the Stage'
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- ``We're seeing the dynamics in play that'll set the stage
for a recovery in housing,'' said Richard DeKaser, chief economist at National
City Corp. in Cleveland, Ohio. ``The drag from residential construction
will be diminishing through the year.''
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- Construction of single-family homes rose 10 percent last
month to a 1.22 million rate, today's report showed. Work on multifamily
homes, such as townhouses and apartment buildings, increased 4.1 percent
to an annual rate of 305,000.
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- The gain in housing starts was led by a 26 percent jump
in the West and an 18 percent increase in the South. Starts in the Northeast
dropped 30 percent and those in the Midwest fell 14 percent.
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- The regional differences point to weather's influence.
Snowstorms in the Midwest and Northeast thwarted builders' plans while
large areas in the South and West were drier than average, economists said.
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- Building Permits
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- Building permits dropped to an annual rate of 1.532 million
in February from 1.571 million a month earlier. Permits to build single-family
homes fell to the lowest since December 1997.
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- The Standard & Poor's Supercomposite Homebuilding
Index, which includes Toll Brothers Inc. and KB Home, retreated 0.5 percent
to 590.12 at 10:23 a.m. in New York.
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- The number of homes under construction fell 0.7 percent
in February to a 1.211 million pace, today's report showed. Housing completions
dropped 9.4 percent to an annual rate of 1.664 million.
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- The number of housing units authorized, though not yet
started, decreased 1.2 percent to 196,300.
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- Fed policy makers are trying to determine the extent
of housing's effect on the economy. Fed Chairman Ben S. Bernanke, citing
signs of tentative stabilization, issued a sanguine outlook during congressional
testimony last month.
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- ``Weakness in residential investment is likely to continue
to weigh on economic growth over the next few quarters,'' Bernanke told
lawmakers. Still, the economy will expand at a ``moderate'' pace, and there's
a ``reasonable possibility'' growth will strengthen during the middle of
the year, he said.
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- Subprime Defaults
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- Increasing defaults by subprime borrowers, or those with
poor or limited credit histories, may slow the housing recovery. Looser
lending standards during the real-estate boom allowed those borrowers to
take on more debt than they could afford, economists said.
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- ``If prices go down, we will have problems -- problems
in the sense of spillover to other areas,'' former Fed Chairman Alan Greenspan
said last week.
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- As defaults by subprime borrowers lead to more foreclosures
and cancellations, homes will be put back on the market, adding to inventories
and depressing prices further, economists said.
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- The median price of both new and previously owned homes
fell in January from a year earlier, recent data showed. The February report
on existing home sales is due March 23 and figures for new homes are due
next week.
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- Builder Pessimism
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- Some homebuilders have already turned more pessimistic.
The National Association of Home Builders/Wells Fargo index of sentiment
fell to 36 this month from 39 in February, a report yesterday showed. It
was the first decline since September and a reading below 50 means most
respondents view conditions as poor.
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- Toll Brothers Inc. Chief Executive Officer Robert Toll
last week said the start of the spring selling season was ``pretty much
a bust'' and he cannot predict when the market will rebound.
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- A few markets where demand was strong and the company
raised prices included parts of the San Francisco area, cities surrounding
New York and the Los Angeles area, Toll said.
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- Pulte Homes Inc. also isn't looking for a quick sales
rebound as buyers wait out the drop in prices.
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- ``We're not projecting anything to bounce off the bottom
at this point,'' Chief Financial Officer Roger Cregg said at a conference
last week. ``There's been a lot of buyers that have moved to the sidelines.''
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- To contact the reporter on this story: Shobhana Chandra
in Washington at <mailto:schandra1@bloomberg.net>schandra1@bloomberg.net
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- http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajWc6oTu7348
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- Comment
- By Jim Sinclair
- JSMineset.com
- 3-20-7
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- The spin is old here but I imagine the Board of Fabrication
could not come up with anything else. Here is the skinny. Homebuilders
live off the builders loans. They pay themselves as well as suppliers and
staff. A builder's loan is short term, expensive and easy to get if you
have good credit and a relationship with the lender. Builders will build
as long as they can get credit. When sales and prices slump, the builders
loan becomes their sole source of income.
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- Anyone who says an increase in housing starts means a
rebound in the real estate market might consider the above. If it did then
an increase in housing starts when the housing market is a buyers market
at lower price means a GLUT of unsold homes coming up. It means builder
bankruptcy will rise significantly. Bankruptcy law still works for a builder,
but not a credit card user.
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