By Courtney Schlisserman Oct. 20 (Bloomberg) -- Builders in the U.S. broke ground in September on fewer houses than anticipated and building permits dropped, signaling the market will slow once government incentives have elapsed. Housing starts rose 0.5 percent to an annual rate of 590,000 from a 587,000 pace in August that was lower than previously estimated, figures from the Commerce Department showed today in Washington. Permits, a sign of future construction, fell for the second time in the past three months. Builders may be paring back in anticipation of the end of the government’s $8,000 tax credit for first-time homebuyers on Nov. 30. Some Federal Reserve policy makers remain concerned the economy will relapse should the stimulus be removed too soon, signaling interest rates will remain low for months. “It’s still way too early to say that housing markets are generating ongoing momentum, and builders right now are justifiably cautious,” said Robert Dye, a senior economist at PNC Financial Services Group Inc. in Pittsburgh. “There’s a great deal of concern out there about hangover effects from the recession on new home sales.” Wholesale prices in the U.S. unexpectedly fell in September as fuel costs dropped, figures from the Labor Department also showed today. The 0.6 percent decrease in prices paid to factories, farmers and other producers was the second drop in three months and indicate inflation will not be a threat as the economy begins to expand. Stocks Trim Gains Stock-index futures trimmed earlier gains following the reports. The contract on the Standard & Poor’s 500 Index was up 0.2 percent to 1,093.3 at 8:46 a.m. in New York after having been as high as 1,099 hours before. Treasury securities climbed on signs inflation is unlikely to accelerate. Economists forecast starts would increase to a 610,000 rate, from a previously reported 598,000 in August, according to the median of 76 projections in a Bloomberg News survey. Estimates ranged from 582,000 to 630,000. Building permits fell 1.2 percent to a 573,000 annual rate last month. They were forecast to climb to a 595,000 pace from 579,000 in August. Construction of single-family homes, which account for about 85 percent of the industry, increased 3.9 percent to a 501,000 rate. Work on multi-family units, which make up the rest of the market and is often volatile, slumped 15 percent to an 89,000 rate. Increase in South The entire gain in starts was attributed to a 7.1 percent increase in the South. The other three regions fell, led by an 8.8 percent decrease in the West. Stabilization in residential construction is among the reasons economists project the U.S. began to grow again last quarter. The world’s largest economy probably expanded at a 3.2 percent annual pace from July through September, according to the median estimate of economists surveyed earlier this month. New home sales have risen seven out of eight months since reaching a four-decade low of 329,000 pace in January. The Commerce Department is scheduled to release September’s sales report on Oct. 28. Builders are becoming more concerned sales will retrench once the government’s $8,000 tax credit for first-time homebuyers expires the end of next month. The National Association of Home Builders/Wells Fargo’s confidence index, released yesterday, unexpectedly declined in October. Pleas for Extension Realtors and home builders are urging Congress to extend the incentive and Treasury Secretary Timothy Geithner said last month that the Obama administration plans to take a “careful look” at the proposal. Fed policy makers at their September meeting considered a relapse into recession a bigger risk than a near-term rise in prices, according minutes of the gathering released last week. They decided to slow purchases of mortgage securities to avoid disrupting the housing market while extending the duration of the program by three months. The Fed’s Beige Book report on regional economies, scheduled to be released tomorrow, will contain the latest information on the state of the housing market and the economy overall for policy makers to consider when they meet again in early November. Regional Improvement D.R. Horton Inc., the largest U.S. homebuilder by revenue, is among companies projecting the recent improvement in some parts of the country will be sustained. The Fort Worth, Texas- based company said last month it is buying finished lots, rather than building on undeveloped land it already owns, to boost its construction pipeline in anticipation of a housing revival. “There have been some small encouraging signs in our sales and our average sales prices,” Bill W. Wheat, D.R. Horton’s chief financial officer, said on a Sept. 30 call with investors. Areas such as Las Vegas and Phoenix were still struggling, he said. Rising unemployment and record foreclosures remain among the hurdles for the industry. The jobless rate reached a 26- year high of 9.8 percent last month, according to the Labor Department. Foreclosures depress the values of existing homes.

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