By Shobhana Chandra Nov. 18 (Bloomberg) -- Builders in October unexpectedly broke ground on fewer U.S. houses as the sales outlook darkened with the looming expiration of a government tax credit and mounting joblessness. The 11 percent plunge in starts to an annual rate of 529,000, the lowest level since April, followed a 592,000 pace the prior month, Commerce Department figures showed today in Washington. Building permits, a sign of future construction, also decreased. The market may have seized up as builders waited to see if the administration would extend a first-time buyer incentive that helped lift sales. President Barack Obama signed legislation this month to include some current owners, which may give companies such as Toll Brothers Inc. reason to gain optimism even as the highest unemployment rate in 26 years shakes confidence. “The numbers are shocking,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts, who forecast starts would drop. The decline “represents a payback for the tax credit, which induced builders to build earlier.” Stock-index futures dropped after the report, erasing earlier gains. The contract on the Standard & Poor’s 500 Index was down 0.1 percent at 1,106.1 at 8:56 a.m. in New York. A separate report from the Labor Department today showed the cost of living rose at a pace that supports the Federal Reserve’s forecast for tame inflation. The 0.3 percent rise in the consumer-price index followed a 0.2 percent increase in September. Excluding food and energy costs, the core index rose 0.2 percent for a second month. Economists’ Forecasts Starts on dwellings were projected to rise to a 600,000 annual pace, after 590,000 in September, according to the median forecast of 77 economists surveyed by Bloomberg News. Estimates ranged from 570,000 to 630,000. Permits, a sign of future construction, dropped to a 552,000 annual pace last month from 575,000. They were forecast to climb to a 580,000 annual rate, according to the survey median. Construction of single-family houses, which account for 75 percent of the industry, 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 on record. The decrease in starts was led by a 19 percent slump in the Northeast. All four regions declined. Tax Credit Extended Construction may further improve after President Barack Obama and Congress 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. Concern over the looming expiration of the credit earlier this month weighed on builder sentiment. The National Association of Home Builders/Wells Fargo’s confidence index held at 17 in November for a second month, the group said yesterday. Some companies are already seeing a turn. Toll Brothers, the largest U.S. luxury homebuilder, last week said orders surged 42 percent in the quarter ended Oct. 31. The Horsham, Pennsylvania-based company also said cancellations slowed and revenue beat analysts’ estimates. Consumer Confidence 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.” A sustained rebound still requires an improvement in the job market. The median estimate of economists surveyed this month anticipated unemployment, which reached a 26-year high of 10.2 percent last month, will top 10 percent through the first half of 2010. Foreclosure filings exceeded 300,000 for an eighth straight month in October as rising joblessness made it tougher for homeowners to pay their bills, RealtyTrac Inc. said last week. To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

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