Builders probably began work on fewer homes in August, highlighting an industry that’s languishing more than two years into the U.S. economic recovery, economists said before a report today.Housing starts fell 2.3 percent to a three-month low 590,000 annual rate, according to the median estimate of 78 economists surveyed by Bloomberg News. Building permits, a proxy for future construction, may have also dropped for a second month.Foreclosures, declining prices and a lack of employment are hindering construction and holding back an industry that’s typically helped spark economic rebounds from past recessions. Tighter lending standards and reductions in homeowner equity mean fewer buyers are able to take advantage of mortgage rates at record lows.“We have more homes than people need to live in,” John Ryding, chief economist at RDQ Economics LLC in New York, said in a Sept. 16 interview on Bloomberg Television. “Housing is going to be pretty depressed in terms of building activity and pretty flat in terms of prices until that market clears.”The Commerce Department’s report is due at 8:30 a.m. in Washington. Survey estimates ranged from 570,000 to 634,000.Permits decreased to a 590,000 annual pace from a 601,000 rate, according to the survey median.Concern over housing and this year’s growth slowdown economy may prompt Federal Reserve policy makers to propose new measures to galvanize the economy when they begin their two-day meeting later today.Fed Chairman Ben S. Bernanke warned last month during a speech in Jackson Hole, Wyoming, that the central bank alone can’t lift sagging home prices or mitigate a wave of home foreclosures.Declining stock values have made households less wealthy, helping push down confidence and discouraging big-ticket purchases. Unemployment above 9 percent also leaves fewer Americans able to take advantage of cheaper borrowing costs.The weaker labor market helps explain a 33 percent jump in default notices sent to U.S. homeowners in August, RealtyTrac Inc. figures showed on Sept. 15. A growing glut of unsold homes that compete with new dwellings may keep hampering construction.Confidence among U.S. homebuilders dropped in September to a three-month low as prospective buyer traffic, sales and purchase expectations declined. The National Association of Home Builders/Wells Fargo sentiment index decreased to 14, figures showed yesterday. Readings less than 50 mean more respondents said conditions were poor.“High unemployment and volatile financial markets continue to undermine consumer confidence in spite of low mortgage rates,” Patricia Bedient, chief financial officer at Weyerhaeuser Co. (WY), said Sept. 15 at a forest products conference. Federal Way, Washington-based Weyerhaeuser owns about 6 million acres of U.S. timberland. “New home markets softened noticeably four to six weeks ago in response to weak employment data and political discord in Washington.”Construction along the eastern seaboard in August may also have been put off because of Hurricane Irene, which caused losses of about $12.4 billion, according to an estimate by Kinetic Analysis Corp., a Silver Spring, Maryland, firm that predicts the effects of disasters.As construction activity has slowed, homebuilder shares’ have declined more than the broader market. The Standard & Poor’s Homebuilder Supercomposite Index, which includes shares of companies including KB Home and D.R. Horton Inc., has slumped 25 percent this year, compared with a 4.3 percent decline for the S&P 500 Index. (SPX)“With all of the economic turmoil, both domestic and international, there’s not much that points to an improving housing market at any point in the near future,” Ara Hovnanian, chairman and chief executive officer of Hovnanian Enterprises Inc., said in call with analysts on Sept. 8. “Our internal business plan assumes market conditions do not improve.”