US getting worse and the fed feeling the heat.

things are getting wrose and worse in the US

                                                       Page 1  of 4    

BN 11:26 U.S. Economy: Housing Starts Decline to 14-Year Low (Update2)

 (Updates markets in seventh paragraph.)                                    

By Shobhana Chandra and Robert Willis
Oct. 17 (Bloomberg) – The two-year U.S. housing recession
deepened in September while inflation remained in check,
buttressing Federal Reserve Chairman Ben S. Bernanke’s focus on
real estate as the major threat to growth.
Builders broke ground at an annual rate of 1.191 million
homes, a greater-than-forecast 10.2 percent decline, the
Commerce Department said in Washington today. Starts were the
lowest in 14 years. Consumer prices, excluding food and energy,
rose 0.2 percent for a fourth month, the Labor Department said
in a separate report. Treasury securities rose for a third day.
The housing figures strengthen the case for Fed policy
makers to cut interest rates again to keep the six-year
expansion alive, economists say. The International Monetary Fund
today lowered its forecast for U.S. growth, blaming the worst
housing market in 16 years.
Housing continues to get worse and worse,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. The contraction will go on into at least the middle of
next year. There are certainly going to be more rate cuts.‘’
The drop was led by a slide in construction of townhouses,
apartments and condominiums. Building permits, a sign of future
construction, declined 7.3 percent after a 4.8 percent decrease
in August. The drop also exceeded analysts’ predictions.
The yield on two-year Treasury notes retreated to 4.03
percent at 11:25 a.m. in New York, from 4.12 percent late
yesterday. The dollar weakened against the euro.

                      Food, Energy                                          
 Including food and energy expenses, consumer prices rose                   

0.3 percent last month, compared with a 0.1 percent decline in
Over the past 12 months, prices rose 2.8 percent, compared
with a 2.0 percent rise in the 12 months through August, the
lowest since October 2006. Inflation excluding food and energy
rose 2.1 percent in the year through September, the same as in
the previous month.
The figures should further ease inflation concerns and allow the Fed to focus on risks to growth,'' said Zach Pandl, an economist at Lehman Brothers Holdings Inc in New York, which correctly forecast the rise in the core rate. To the Fed, the
current level of core CPI inflation is only moderately high, and
it will not significantly constrain their policy options at
upcoming FOMC meetings.‘’
Starts were projected to fall to a 1.28 million unit pace,

Copyright (c) 2007, Bloomberg, L. P.

Page 2 of 4

from an originally reported 1.331 million in August, according
to the median forecast of 79 economists polled by Bloomberg
Construction of single-family homes fell 1.7 percent to a
963,000 rate, today’s report showed. Work on multifamily homes
slumped 34 percent.

                  Regional Differences                                      
 The decrease in starts was led by a 28 percent drop in the                 

Midwest. Construction fell 12 percent in the South and 10
percent in the West. Starts jumped 45 percent in the Northeast.
The number of homes under construction fell 1.4 percent to
a 1.114 million pace and the number of properties completed
dropped 8.2 percent to an annual rate of 1.391 million.
Housing units authorized, but not yet started, decreased
4.2 percent to 187,400, today’s data showed.
Housing will be a significant drag'' on the economy into next year as conditions in mortgage markets remain
difficult,‘’ Bernanke said in a speech in New York on Oct. 15.
Policy makers lowered the benchmark rate by a half point to
4.75 percent on Sept. 18. The decision followed the August
turmoil in financial markets that triggered concern over rising
defaults by subprime mortgage borrowers, or those with poor or
limited credit history.

                  Housing `Correction'                                      
 ``Risk-management considerations also played a role in the                 

decision, given the possibility that the housing correction and
tighter credit could presage broader weakening in economic
conditions that would be difficult to arrest,‘’ Bernanke said.
The National Association of Home Builders/Wells Fargo index
of builder confidence plunged to a record low 18 in October, the
Washington-based association said yesterday. Levels lower than
50 mean most respondents view conditions as poor. The index
averaged 42 last year.
Builders are reeling from a surge in cancellations as
buyers turn more cautious and banks pull back on lending.
The Standard and Poor’s Supercomposite Homebuilding Index
was down 0.4 percent to 336.1 at 11:25 a.m. today. The index is
down about 50 percent this year after losing 20 percent in 2006.
D.R. Horton Inc., the second-largest U.S. homebuilder, said
yesterday that orders in the quarter ended Sept. 30 plunged to
the lowest in almost six years. Centex Corp. last week said
it’ll take a $1 billion charge on property and generate less
cash from sales than forecast.

                  `Remain Challenging'                                      

Copyright (c) 2007, Bloomberg, L. P.

Page 3 of 4

 ``We expect the housing environment to remain                              

challenging,‘’ D.R. Horton’s Chairman Donald Horton said.
``Buyers continued to approach the home-buying decision
Foreclosures doubled in September from a year earlier as
subprime borrowers struggled to make payments on adjustable-rate
mortgages, according to RealtyTrac Inc. Rising foreclosures will
throw even more properties back on the market, economists said.
The National Association of Realtors last week cut its
home-sales forecast for the 10th time this year. New-home sales
will decline 24 percent this year to a 10-year low and existing-
home sales will fall 11 percent, the group said Oct. 10.
The economy will probably grow at a 1.8 percent annual pace
this quarter after expanding at a 2.7 percent rate from July
through September, according to the median estimate of
economists surveyed by Bloomberg earlier this month.

–With reporting from Kathleen Howley in Boston. Editor: Torres

To contact the reporter on this story:
Shobhana Chandra in Washington +1-202-624-1888 or

To contact the editor responsible for this story:
Chris Anstey at +1-202-624-1972 or

Bakersfield California.