Housing Starts Rebound, Up 9%

Washington, DC, March 20, 2007–New home starts rebounded by 9% in February after a 14% decline in January, but less volatile building permits declined by 2.5%, the Commerce Department reported Tuesday.

Housing starts were up 9% to a seasonally adjusted annual rate of 1.525 million in February from a revised 10-year low of 1.399 million in January, beating the expectations for a smaller increase to 1.46 million. Starts are down 28.5% compared with February 2006.  

Building permits, which are not as affected by weather, fell 2.5% in February to a seasonally adjusted annual rate of 1.532 million from 1.571 million in January. Economists expected permits to be roughly unchanged.

Permits are down 28.6% compared with February 2006.

The government’s housing data are subject to large sampling and other statistical errors. It can take five months for a new trend in housing starts to emerge from the data.

In the past five months, housing starts have averaged 1.52 million annualized, down from 1.56 million in the five months ending in January and 2.12 million in February 2006.

Economists also warn that data on housing starts are very sensitive to local weather conditions, especially in the winter months.

By illustration, starts jumped 26% in the West and 18% in the South, offsetting declines of 30% in the Northeast and 14% in the Midwest.

In much of the nation, the weather turned cold and wet in the second half of January and into February after a very mild November and December.

In February, permits fell 26% in the Northeast and 18% in the Midwest. They rose 9% in the West and 3% in the South.

The data are not likely to have much impact on the deliberations at the Federal Reserve later Tuesday and Wednesday. The Federal Open Market Committee is expected to keep its overnight interest rate target steady at 5.25%. The last time, the committee noted some “tentative” signs of stabilization in the troubled housing market, but since then, bad subprime mortgages have surfaced, upsetting investor sentiment. See our full Fed coverage.

Completions of new homes fell 9.4% to a seasonally adjusted annual rate of 1.66 million, an indication that builders are ramping down their inventories. It’s the lowest number of completions since August 2003. It takes about 6 months for a home to go from groundbreaking to completion.

There were 1.2 million homes under construction in January, down 15% from the previous February.

Starts of single-family homes increased 10.3% in February to a seasonally adjusted annual rate of 1.22 million. Permits for single-family homes dropped 3.1% to 1.09 million annualized.

In all of 2006, 1.80 million homes were started, down from 2.07 million in 2005.