January Home Builds Falter After December Surge

Construction starts on new homes in January fell 8.5 percent from the previous month, driven downward by a dip in multifamily home builds, though the 23 percent gain in that category in December deflected doubts in the market's durability. Permits rose 1.8 percent to mid-2008 levels.

A steep drop in multifamily housing starts in January slowed the ongoing improvement in the housing market, but signs still point toward long-term promise.

Homebuilders started work on new homes at a seasonally adjusted annual rate of 890,000 last month, a drop of 8.5 percent from December, when it hit the highest level since June 2008, according to a February 20 Commerce Department report.

A 24.1 percent drop in multi-family unit construction drove the decline, which is a more volatile segment than single-family housing. Single-family starts added 0.8 percent, while permits, which forecast future building, rose 1.8 percent to 925,000 units, the quickest pace since mid-2008.

The government revised December figures upward to a 973,000 pace, up from 920,000 – a 23 percent increase that made the January decline almost inevitable, in light of the slowing typical for construction in winter.

"Today's report is quite positive in that it shows continued upward movement in single-family housing production and permitting activity for both single- and multifamily units," said David Crowe, chief economist for the National Association of Home Builders (NAHB). "The decline in multifamily starts reflects an adjustment from an unsustainably large gain in December, and is consistent with the up-and-down swings often associated with that sector."

Last year's final figures show that builders began construction on 780,000 homes, a 28 percent improvement from 2011, and about half the 1.5 million that economics say represents a healthy housing market.

"Steady demand for new homes is prompting builders to put more construction crews back to work in order to replenish thin supplies of completed product," said Rick Judson, NAHB chairman and Charlotte, N.C.-based homebuilder.

Builder confidence in the market for newly built, single-family homes was declined one point to 46 on the NAHB/Wells Fargo Housing Market Index (HMI) in February. Holding above the critical mid-point of 50 for a third consecutive month, the HMI component gauging current sales conditions fell by a single point to 51 in February. Meanwhile, the component gauging sales expectations in the next six months rose by one point, to 50, and the component gauging traffic of prospective buyers slipped four points, to 32.

Regionally, single- and multifamily housing production combined to gain 4.1 percent in the South and 16.7 percent in the West, but the Northeast fell 35.3 percent and the Midwest gave up 50 percent in January. Permitting activity rose in three out of four regions in January "?u a 10.1 percent gain in the Northeast, a 1.4 percent gain in the Midwest and a 1.1 percent gain in the South. The West posted a 0.5 percent decline.