Housing starts fell to a 960,000 annual pace last month, the weakest since March 1991, from 975,000 in May, according to the median of 76 forecasts in a Bloomberg News survey. Building permits, a sign of future construction, probably fell to a 965,000 rate from 978,000.

Builders are cutting back as rising foreclosures, higher mortgage rates and declining property values threaten to depress home sales further. The slump in financial markets brought on by mounting subprime losses may prompt lenders to choke off credit, making the situation even worse.

"Mortgage rates have edged higher and distress in financial markets has escalated, keeping potential buyers on the sidelines," said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York. "Until the supply comes down, builders would rather cut construction."

The Commerce Department's report on starts is due at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from annual rates of 925,000 to 1.03 million.

Other reports today are projected to show first-time claims for jobless benefits rebounded last week and manufacturing in the Philadelphia region contracted in July for an eighth month.

Hurting economy

Declines in construction will probably limit economic growth, even as tax rebates give consumer spending a boost. Residential building dropped at a 24.6 percent pace in the first quarter and subtracted 1.1 percentage points from growth.

Federal Reserve Chairman Ben S. Bernanke this week abandoned his June assessment that the threat of an economic downturn had diminished. During testimony before U.S. lawmakers in Washington he also said that "upside risks to the inflation outlook have intensified."

A report yesterday from the National Association of Home Builders/Wells Fargo showed confidence among U.S. homebuilders in July dropped to the lowest level since records began in 1985.

Concern over the ability of Fannie Mae and Freddie Mac, the largest U.S. purchasers of mortgages, to withstand the subprime lending meltdown has heightened the credit crisis and may further limit access to loans.

Foreclosures jump

Foreclosure filings rose 53 percent in June and bank seizures increased a record 171 percent from a year ago, RealtyTrac Inc., a seller of default data, said last week in a statement. The Irvine, California-based company began collecting statistics on default notices, warnings of scheduled auction and repossessions in January 2005.

One in every 500 U.S. households has entered a stage of the foreclosure process, RealtyTrac said.

M/I Homes inc., a homebuilder concentrating in the Midwest, Florida and the Mid-Atlantic states, said July 10 it delivered 478 homes in the second quarter, down from 755 in the same period in 2007. The Columbus, Ohio-based company said the number of new contracts fell to 530, from 688.

Source: Bloomberg