Home Starts Surge 14.5 percent
NY Times - Home construction jumped 14.5 percent to a 34-year high last month, the government reported today, a sign that builders may have taken advantage of the unusually warm weather in January.
The report surprised many analysts because home sales have perceptibly slowed and the number of unsold homes has risen in many markets around the country in the last several months. Many home builders have also said that they are having to offer bigger incentives to lure buyers.
Housing starts jumped to an annual pace of 2.28 million, the fastest level since 1972, after falling 6.9 percent in December, and permits for new construction increased 6.8 percent, to 2.22 million, after falling 4.1 percent in December. Compared to a year ago, housing starts were up 11 percent.
Home building activity was strongest in the Northeast, where starts jumped 29.2 percent; followed by the Midwest, up 23.7 percent; the West, 16.9 percent; and the South, 8.7 percent.
Construction activity is closely tied to the weather, analysts said, and last month registered as the warmest January ever recorded by the government, with an average temperature of 39 degrees, up 8.5 degrees from the historical average for the month. The unusual weather has also been cited for stronger retail sales and weaker industrial production, the latter because utilities produced less electricity.
The weather effects could be magnified further because most economic data, including housing starts, are seasonally adjusted to account for historical weather and other patterns. Because January is usually one of the coldest months of the year, those adjustments would have already bolstered the figures the government reports for the month.
“Looking beyond the month-to-month numbers, the trend in starts lags the trend in sales, which in turn lags the trend in mortgage applications,” Ian Shepherdson, chief economists at High Frequency Economics, wrote in a research note. And “the latter is plummeting.”
But some housing officials are more optimistic about the year to come, given that mortgage interest rates remain low and the economy appears to be adding jobs at a stronger clip in recent months.
“We expect 2006 to be the second strongest year on record for housing, following 2005,” said Bob Walters, chief economist of Quicken Loans, a mortgage lending subsidiary of Intuit. “Low long term rates and a strong jobs market will continue to provide substantial support to the housing market.”