June 17 (Bloomberg) -- Residential construction declined in May to a four-month low and homebuilder confidence stayed depressed, reports this week may show, indicating the housing slump will persist even as other parts of the economy show renewed strength.
Housing starts slid to an annual rate of 1.472 million in May from 1.528 million the prior month, according to the median forecast of 58 economists in a Bloomberg News survey ahead of the Commerce Department's June 19 report.
Sluggish demand is keeping builders focused on getting rid of unsold homes before they take on more new projects. That's one reason Federal Reserve policy makers say the housing market may take longer to emerge from its slump than they previously expected.
``Housing is still trying to find its low point,'' said Lynn Reaser, chief economist at the Investment Strategies Group of Bank of America Corp. in Boston. ``Builders have a lot of inventory, and prices probably need to fall further. Housing will remain a drag on the economy as the bottoming-out is likely to take a number of months.''
Estimates of May housing starts ranged from 1.43 million to 1.59 million. The same Commerce Department report may show building permits, an indicator of future construction, rebounded in May from the lowest level in almost a decade, economists said.
Building Permits
The median forecast in the Bloomberg News survey shows building permits rose to a 1.48 million annual pace in May from a revised 1.457 million annual rate the prior month. Estimates ranged from 1.42 million to 1.56 million.
A private report on June 18 may show the National Association of Home Builders/Wells Fargo index of homebuilder sentiment held at 30 for a second month, economists predicted. The gauge hasn't been lower since February 1991.
Economists' estimates for the sentiment index ranged from 28 to 31. A reading below 50 means most respondents view conditions as poor.
``The slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected,'' Fed Chairman Ben S. Bernanke said at a conference in Cape Town, South Africa, earlier this month.
Foreclosures
The number of Americans who may lose their homes because of late mortgage payments rose to a record in the first quarter, led by subprime borrowers, the Mortgage Bankers Association said June 14. Defaults by subprime borrowers, those with a poor or patchy credit history, are adding to the risk that more homes may be returned to the market, economists said.
``The housing market is teetering on the margin,'' Richard DeKaser, chief economist at National City Corp. in Cleveland, said in an interview this week.
At the same time, the economy looks set to rebound from last quarter's 0.6 percent annual pace of growth, which was the slowest in more than four years, economists said. One reason is the housing recession isn't spilling over much into other parts of the economy, they said.
A Conference Board report June 21 may show a gauge of the economy's future course improved last month. The group's index of leading economic indicators rebounded 0.3 percent after a 0.5 percent drop in April, according to the median of economists' forecasts.
Support for the anticipated pickup in growth is coming from gains in the stock market and a resilient labor market, encouraging Americans to keep spending in spite of declines in home values and higher gasoline prices. Consumer spending accounts for more than two thirds of the economy.
The number of Americans filing first-time claims for unemployment benefits stayed unchanged at 311,000 for the third consecutive week, economists forecast in a Bloomberg survey ahead of a Labor Department report on June 21.
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