U.S. January Home Starts Stay Near Lowest Since 1991
By Bob Willis
Housing starts in the U.S. remained near their lowest level since 1991 in January, a sign the deepest real-estate recession in a quarter century will continue to weigh on the economy this year.
Work began on 1.012 million homes at an annual rate, up 0.8 percent from December, the Commerce Department said today in Washington. Building permits, an indication of future construction, fell 3 percent to a 1.048 million rate. Both figures were in line with forecasts.
A glut of unsold homes, mounting foreclosures and falling prices signal the housing slump will continue to detract from growth, setting the stage for more interest-rate cuts. Federal Reserve Chairman Ben S. Bernanke last week said the Fed was ready to act in a ``timely'' manner to keep the expansion from faltering.
``We don't think housing has hit bottom yet,'' said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto. ``Until we get some stabilization in sales or even a mild improvement, it's likely that construction will continue to weaken.''
A separate report from the Labor Department showed consumer prices rose more than forecast in January. The 0.4 percent increase in the cost of living matched the gain in December. Excluding food and energy, prices rose 0.3 percent, after a 0.2 percent climb a month earlier, leading the so-called core rate to the biggest increase since June 2006.
Starts were projected to rise to a 1.01 million pace from an originally reported 1.006 million rate in December, according to the median forecast in a Bloomberg News survey of economists. Permits were forecast to drop to a 1.05 million rate, from 1.068 million in December, according to the survey median.
The dollar extended gains against the euro after the reports. The yield on the benchmark 10-year Treasury note rose to 3.93 percent at 9:09 a.m. in New York, from about 3.90 late yesterday.
Construction starts on single-family homes declined 5.2 percent to a 743,000 rate, the lowest rate since January 1991, today's report showed. Work on multifamily homes, such as townhouses and apartment buildings, increased 22 percent to an annual rate of 269,000 from the prior month.
For all of last year, construction began on 1.355 million housing units, the fewest since 1993, and down 25 percent from the previous year, today's Commerce Department report showed.
Last month's gain in starts was led by a 19 percent increase in the Northeast and a 12 percent rise in the Midwest. Starts declined 3 percent in the South and 6 percent in the West. Single-family housing starts in the West were the lowest since record-keeping began in 1959, the Commerce Department said.
Materials, Appliance Demand
The decline in home construction, exacerbated by tighter credit conditions, is slowing demand for construction materials and appliances, and increasing firings at builders, lenders and retailers. Falling home prices also leave consumers feeling less wealthy, slowing the spending that makes up two-thirds of the economy and threatening to push the economy into a recession.
The U.S. economy will probably grow at a 0.5 percent pace in the first quarter and a 1 percent rate in the second quarter, according to the median forecast in a Bloomberg survey of economists taken the first week of February. The economists surveyed said a recession this year was an even bet.
``Growth looks to be weak but still positive during the first half of the year,'' Bernanke told Congress last week. The Fed ``will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.''
Investors and economists are betting the Fed will cut its benchmark rate by a half point to 2.5 percent at its next meeting ending March 18. The Fed cut rates in January at the fastest pace since 1990, as rising subprime defaults led to global credit tightening and declines in equity prices.
The Fed's updated quarterly forecasts will be released at 2 p.m. today, along with minutes of its two January policy meetings. Bernanke, citing the housing recession, last week said updated quarterly Fed forecasts would reflect slower growth projections.
``Growth looks to be weak but still positive during the first half of the year,'' Bernanke said.
Through December, housing starts had fallen 56 percent from a three-decade peak of 2.29 million units reached in January 2006. Lehman Brothers Holdings Inc. is forecasting starts to fall to a low of about an 830,000 unit pace by the third quarter of this year.
New home sales through December were down 57 percent at a 604,000 unit pace from their July 2005 high, while existing home sales had fallen 32 percent from their September 2005 high to a 4.89 million pace. Lehman forecasts sales of new homes to bottom at a 580,000 pace in the middle of this year, while existing home sales may reach a low of 4.49 million units.
Rising foreclosures are adding to inventories and postponing any recovery. Home foreclosures rose 97 percent in December from a year earlier, while an estimated 1.03 percent of homes were in some stage of foreclosure in 2007, RealtyTrac reported Jan. 29.
Homebuilders are staggering. Kimball Hill Inc., a closely held homebuilder active in six states, said Feb. 15 it may file for Chapter 11 bankruptcy protection as demand for new homes tumbles.
``There are substantial doubts about whether the company will be able to continue as a going concern,'' Rolling Meadows, Illinois-based Kimball Hill said in a regulatory filing.