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Homebuilding declined in December; still best year since 2007

WASHINGTON -- Despite the pace of U.S. home construction declining in December, the year's production was the best for the industry since 2007.

Housing starts fell 9.8 percent to a 999,000 annualized rate following November’s revised 1.11 million pace, which was the highest since November 2007, the Commerce Department reported Friday in Washington.

In a sign that activity may pause further in early 2014, permits for future projects also declined.

Housing remains a mainstay of the expansion, with builders breaking ground on more projects as an improved job market boosts demand for real estate.

At the same time, bigger gains in employment and incomes will be needed to overcome the decline in affordability as property values and mortgage rates rise.

“Housing will make a significant contribution to growth this year,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Mass. “Higher prices are bringing more building.”

Applications for building permits fell 3 percent to a 986,000 pace in December, less than the projected 1.01 million, according to the Bloomberg survey median.

For all of 2013, builders began work on 923,400 homes, up 18.3 percent from the prior year and the most since 2007’s 1.36 million.

Work on single-family houses fell 7 percent to a 667,000 rate in December from 717,000 the prior month.

Construction of multifamily projects such as condominiums and apartment buildings declined 14.9 percent to an annual rate of 332,000.

Two of four regions showed a decrease in groundbreaking last month, led by a 33.5 percent plunge in the Midwest.

Starts fell 12.3 percent in the South, were little changed in the Northeast and rose 15 percent in the West to a six-year high of 269,000.

Weather may have played a role in setting back some builders, autodealers and retailers as last month was the coldest December since 2009. Snowfall was 21 percent above normal, according to weather-data provider Planalytics Inc.

Still, labor market gains and rising real estate values have developers upbeat about the industry’s prospects.

Homebuilder sentiment in January held near its highest level in eight years, dipping to 56 from 57 in December. Readings greater than 50 mean more respondents report good market conditions.

Borrowing costs for prospective buyers have climbed since Federal Reserve policy makers last year signaled they would pare purchases of mortgage-backed securities and other bonds, a process that began this month.

The central bank probably will stick to its plan to gradually reduce asset purchases, tapering by $10 billion over the next six meetings before announcing an end to the program no later than December, according to a Bloomberg News survey of economists.

The average 30-year, fixed-rate mortgage was 4.41 percent for the week ended Jan. 16, compared with 3.38 percent a year ago, according to Freddie Mac in McLean, Va.

Mortgage costs remain historically low and builders have yet to catch up with demand.

The U.S. requires between 1.6 million to 1.9 million new units a year just to accommodate population growth and household formations, according to the Harvard Joint Center for Housing.

As demand increases, builders are stocking up on land to develop, suppliers are boosting capacity and mortgage lending is growing.

“Babies are being born and people want to move up in housing so there’s a growing demand,” said Kelly King, chairman and chief executive officer at BB&T Corp. (NYSE: BBT), a regional bank and mortgage lender in Winston-Salem, N.C. BB&T earnings were up 6.1 percent in the fourth quarter.

“We are at a pivotal point in the economy,” King said on Jan. 16. “I am more positive about where we are and where we’re going today than, say, certainly 120 days ago.”

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