Builders began work on fewer U.S. homes than forecast in August, showing the industry remains flat on its back even as mortgage rates fall to record lows.
Housing starts dropped 5% to a three-month low 571,000 annual rate, Commerce Department figures showed Tuesday. The median forecast in a Bloomberg News survey called for a 590,000 pace. Building permits, a proxy for future construction, climbed unexpectedly.
Foreclosures, declining prices and a lack of employment are holding back residential construction, which has typically helped spark economic rebounds from past recessions.
Tighter lending rules and declining homeowner equity mean fewer buyers are able to take advantage of lower borrowing costs, highlighting the limits faced by Federal Reserve policymakers as they consider new ways to stimulate the economy during a two-day meeting which started Tuesday.
"Conditions aren't getting much worse, but there's also no sign of a real turnaround," said Celia Chen, a housing economist at Moody's Analytics Inc. in West Chester, Pa. August starts may have been put off because of bad weather, she said. "Permits rose and that might be a sign there's hope."
Estimates for housing starts ranged from 570,000 to 634,000 in a Bloomberg survey of 78 economists. July's pace was revised to 601,000 from a previous estimate of 604,000. Home construction totaled 554,000 units in 2009, the lowest since record keeping began in 1959.
The drop in construction last month was led by a 29% slump in the Northeast, which indicates the threat posed by Hurricane Irene may have prompted builders to pull back.
The flooding caused by the storm means projects scheduled to begin in the region this month may also have been delayed, according to economists like Jennifer Lee at BMO Capital Markets in Toronto.
Fed officials on Wednesday will probably announce a program for monetary easing that will do little to turn the economy around and help 14 million unemployed Americans find work, according to economists in a Bloomberg survey.
Seventy-one percent of the 42 economists surveyed forecast policymakers will agree to replace short-term Treasuries with longer-term debt in a bid to reduce borrowing costs even more.
The average rate on a fixed 30-year mortgage loan decreased to 4.09% last week, the lowest since record keeping began in 1972, according to figures from Freddie Mac.
The rates are typically based on the yield of the benchmark 10-year Treasury note, one of the borrowing costs the central bank would be aiming to lower in a so-called Operation Twist.
Fed Chairman Ben S. Bernanke warned last month during a speech in Jackson Hole, Wyo., that the central bank alone cannot lift sagging home prices or mitigate a wave of home foreclosures.
Tuesday's report showed permits rose 3.2%, to a 620,000 annual rate in August, the highest this year and a sign construction may stabilize. Permits climbed in three of four regions, led by an 11.3% jump in the West. They climbed 6.3% in the Midwest and 3.3% in the Northeast.
New construction of single-family houses decreased 1.4%, to a 417,000 rate in August from the previous month.
Work on multifamily homes, such as townhouses and apartments, slumped 13.5%, to an annual rate of 154,000.
Starts dropped in two of four regions, with the South joining the Northeast in decline. They climbed in the Midwest and West.
Declining stock values have made households less wealthy, helping push down confidence and discouraging big-ticket purchases.
Unemployment above 9% also leaves fewer Americans able to take advantage of cheaper borrowing costs.
