U.S. housing starts fall 5% in August

Builders began work on fewer U.S. homes than forecast in August, showing the industry remains flat on its back even as mortgage rates fall to record lows.

Housing starts dropped 5 percent to an annual rate of 571,000 -- a three-month low according to Commerce Department figures released Tuesday. The median forecast in a Bloomberg News survey called for a 590,000 annual pace. Building permits, a proxy for future construction, unexpectedly climbed.

Foreclosures, declining prices and a lack of employment are holding back residential construction, which has typically helped spark economic rebounds from past recessions.

Tighter lending rules and declining homeowner equity mean fewer buyers are able to take advantage of lower borrowing costs, highlighting the limits faced by Federal Reserve policy makers as they consider new ways to stimulate the economy at its meeting Tuesday and Wednesday.

"Conditions aren't getting much worse, but there's also no sign of a real turnaround," said Celia Chen, a housing economist at Moody's Analytics Inc. in West Chester, Pa. August starts may have been put off because of bad weather, she said.

The average rate on a fixed 30-year mortgage loan decreased to 4.09 percent last week, the lowest since record-keeping began in 1972, according to figures from Freddie Mac. The rates are typically based on the yield of the benchmark 10-year Treasury note. -- Bloomberg News