Tax Credit Extended and Mortgage Rates Remain Low
Fed on ‘Hold’
“I don’t see anything in the report that suggests there’s any real inflation flare-up,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “The Fed is comfortably on hold.”
The Fed earlier this month repeated that it will keep interest rates near zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.
“Inflation seems likely to remain subdued for some time,” Fed Chairman Ben S. Bernanke said in a Nov. 16 speech to the Economic Club of New York.
Fed policy makers’ long-term forecast for their preferred measure of inflation, the Commerce Department index tied to consumer spending and excluding food and fuel, calls for gains in a range of 1.7 percent to 2 percent. It was up 1.3 percent in the 12 months to September.
Tax Credit
Obama and Congress this month extended a tax credit of as much as $8,000 for first-time homebuyers until April 30, from Nov. 30. They also expanded it to include some current owners.
Construction of single-family houses, which last month accounted for 90 percent of the market, decreased 6.8 percent to a 476,000 rate, today’s report showed. Work on multifamily homes, such as townhouses and apartment buildings, plunged 35 percent to an annual rate of 53,000 that was the lowest since records began in 1959.
“The prospects for this segment of the housing market are grim,” David Resler, chief economist at Nomura Securities International Inc. in New York, said in a note to clients referring to the slump in multifamily construction. Resler said record rental vacancy rates and a lack of credit for commercial projects will continue to hurt this area.
The weather may have also played a part in depressing construction activity, economists said. Last month was the wettest October in more than a century of record keeping, according to the National Oceanic and Atmospheric Administration.
Broad-Based Drop
While all four regions of the U.S. showed declines, the decrease in starts was led by a 19 percent slump in the Northeast.
Toll Brothers Inc., the largest U.S. luxury homebuilder, is among companies seeing improvement. The Horsham, Pennsylvania-based company last week said orders surged 42 percent in the quarter ended Oct. 31, while cancellations slowed and revenue beat analysts’ estimates.
Gains in consumer confidence, more stable home prices and fewer unsold houses “suggest that the new home market should be improving,” Chief Executive Officer Robert Toll said in a statement. “We sense that it is, though slowly and through choppy waters.”
To contact the reporters on this story: Shobhana Chandra in Washington schandra1@bloomberg.net; Courtney Schlisserman in Washington cshlisserma@bloomberg.net
Last Updated: November 18, 2009 11:52 EST