Builders in the U.S. began work on more homes in November for the first time in three months, showing the industry is struggling to recover.

Housing starts rose to a 555,000 annual rate, up 3.9 percent from October’s 534,000 pace that was higher than initially estimated, Commerce Department figures showed today in Washington. The median estimate in a Bloomberg News survey called for a 550,000 pace. Building permits, a proxy of future work, fell, reflecting a drop in applications for multifamily projects.

Companies like Toll Brothers Inc. anticipate the industry that triggered the worst recession since the 1930s will regain its footing in coming months after the end of a tax credit caused demand to slump. While low borrowing costs and prices may help entice buyers, mounting foreclosures and unemployment near 10 percent mean housing will take years to fully rebound.

“The housing recovery is fragile at this point,” Michelle Meyer, a senior U.S. economist at Bank of America Merrill Lynch Global Research in New York, said before the report. “Demand remains very weak for new houses. Builders are competing with distressed properties so construction remains depressed.”

The median forecast was based on a survey of 76 economists. Estimates ranged from 520,000 to 595,000.

Permits dropped 4 percent to a 530,000 annual rate, the lowest level since April 2009. They were projected to climb to a 560,000 annual rate, according to the survey median.

Current-Account Gap

Another Commerce Department report today showed the current- account deficit widened to $127.2 billion in the third quarter, reflecting an increase in imports. The gap, the broadest measure of international trade because it includes income payments and government transfers, was the biggest in almost two years.

From the same month last year, housing starts fell 5.8 percent, while permits were 15 percent lower.

Construction of single-family houses increased 6.9 percent to a 465,000 rate, the highest level since April. While permits also rose, by 3 percent, the 416,000 level of applications in November signals work may slow in coming months.

Work on multi-family homes, such as townhouses and apartment builders, dropped 9.1 percent to an annual rate of 90,000, a third consecutive decline and the lowest level since June. Multifamily permits plunged 23 percent to a 114,000 pace.

Three of four regions showed an increase, led by a 16 percent increase in the Midwest.

Americans have pulled back on house purchases following the expiration of a tax incentive of as much as $8,000, which required that contracts be signed by April 30 and closed by Sept. 30. Sales of new and existing properties fell in October. Figures for November are due next week.

Fed’s Concerns

Today’s report is a reminder why Federal Reserve policy makers, who met Dec. 14 for the final time this year, say housing is lagging while the economy rebounds. They cited declines in home values as one of the constraints on consumer spending.

“The housing sector continues to be depressed,” Fed officials said in a statement after the gathering, at which they reiterated a plan to expand record monetary stimulus and said economic growth is “insufficient to bring down unemployment.”

Home values are poised to drop by more than $1.7 trillion in 2010, according to Zillow Inc., a closely held provider of home price data. This year’s estimated decline, more than the $1.05 trillion drop in 2009, brings the loss since the June 2006 home-price peak to $9 trillion, Seattle-based Zillow said on Dec. 9.

The National Association of Home Builders/Wells Fargo’s confidence index was unchanged in December from a month earlier, a report showed yesterday, indicating developers remained pessimistic.

Builder Outlook

Even so, the housing market will avoid a double-dip after reaching a bottom last year, and the industry will gain momentum in 2012, according to Douglas Yearley, chief executive officer of Toll Brothers, the largest U.S. luxury-home builder.

“The recovery is here to stay,” Yearley said in a Dec. 7 interview in New York. “I think 2011 will be an improving year, but I think 2012 will be a big year for us.”

While the number of visitors to its sales offices isn’t up, Horsham, Pennsylvania-based Toll is seeing more “quality” visitors, a sign buyers are less skittish about the market and more serious about purchasing, he said.

Source bloomberg.com

Home prices gained 5.7% over the three months ending in August, according to real estate data provider Clear Capital. But analysts added price growth has slowed and will contract well into 2011.

The price gain through August is down 240 basis points from the July report, which dropped 70 bps from June. Alex Villacorta, senior statistician at Clear Capital, said prices built up a 13% cushion from its trough in 2009.

“Overall, prices look poised to continue their deceleration with a likely drop into negative territory by the end of the year,” Villacorta said.

With the drastic drop in home sales shown in July, prices will continue to soften and drop below 2009 levels next year.

Drilling down to the metropolitan statistical areas (MSAs), many of the 15 highest performing markets showed double-digit quarterly gains through August. Home prices in San Diego increased 11.2% above levels seen a year ago, but most of the improved areas were in the Midwest and South regions.

Conversely, 11 of the previously top-performing markets showed accelerating declines. New Orleans, Cleveland and Columbus had prices fall by more than 7%.

“The interesting part about all of these markets is that for the first time, the local markets are left to their own devices,” Villacorta said.

During the housing bubble, all the markets trended up with the widespread availability of credit, and when the market made its downturn in 2008, REO properties had flooded the market, dragging down prices fairly evenly, Villacorta said.

But as the national market tries to recover, the gaps between the different micro-markets will begin to widen.

“Now that we’re getting close to that point again, it’ll really start to separate which markets are healthy enough to have a sustained recovery and which ones still have a way to go,” Villacorta said. “When you’re talking national, when you look at one number that’s supposed to characterize the whole country, it’s akin to putting out one weather forecast for the entire country.”

Housingwire.com

All told, prices are down 19.5% from the peak in July 2006.