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Builders worked on fewer houses than forecast in January

The pace of U.S. home construction declined more than forecast in January, indicating an unusually harsh winter probably played a role in slowing projects.

Housing starts fell 16 percent to an 888,000 annualized rate following December’s revised 1.05 million, the Commerce Department reported Wednesday in Washington. The decrease was the biggest since February 2011. The median estimate of 84 economists surveyed by Bloomberg called for 950,000. Permits for future projects showed a smaller drop, a sign activity may stabilize as the weather improves.

The coldest January in two decades probably limited groundbreaking for homebuilders as construction dropped to a record low in the Midwest. At the same time, a strengthening labor market in 2014 may help the housing industry pick up from a slow start to the year even as borrowing costs rise.

“A lot of it is weather, obviously,” Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, said before the report. Still, “the story is better job and income growth and you have all this pent-up demand. You’re seeing household formation start to improve and inventories have been pared down.”

Estimates for starts in the Bloomberg survey ranged from 880,000 to 1.04 million. The December reading was revised up from a previously estimated 999,000 pace.

Another report on Wednesday showed producer prices increased in January, led by gains in goods such as food and pharmaceuticals.

Producer prices

The 0.2 percent advance in the producer-price index followed a 0.1 percent rise the prior month, according to data from the Labor Department. The median estimate in a Bloomberg survey called for a 0.1 percent increase. Excluding volatile food and energy, it also rose 0.2 percent.

The Commerce Department’s housing report showed applications for building permits declined 5.4 percent to a 937,000 pace in January, less than the projected 975,000, according to the Bloomberg survey median.

For all of 2013, builders began work on 926,700 homes, up the most since 2007’s 1.36 million.

Work on single-family houses dropped 15.9 percent to a 573,000 rate in January, the fewest since August 2012, from 681,000 the prior month. Construction of multifamily projects such as condominiums and apartment buildings declined 16.3 percent to an annual rate of 307,000, a three-month low.

Three of four regions showed declines in groundbreaking last month, led by a record 67.7 percent plunge in the Midwest to a 50,000 annualized pace, the fewest in data going back to 1959. Starts dropped 12.5 percent in the South.

Weather’s impact

The total drop may not be fully attributed to bad weather as the West, where temperatures were higher than normal, also showed a 17.4 percent decrease, the biggest since November 2012.

In the Northeast, where the mercury also declined, starts surged 61.9 percent, the most since December 2012.

Inclement weather has weighed on the economy so far this year, holding back builders and preventing customers from visiting car dealerships and retailers. Government offices in Washington closed Feb. 13 as a winter storm that paralyzed the South with snow and ice moved to the Northeast, canceling flights, snarling traffic and downing power lines.

Last month was the coldest January since 1994 in the contiguous United States, based on gas-weighted heating-degree days, a measure of energy demand, according to Commodity Weather Group LLC in Bethesda, Maryland. The U.S. Northeast is also on track for the coldest winter since 1982, measured from December to February, the group said.

Builder confidence

Confidence among U.S. homebuilders plunged in February by the most on record as the bad weather limited prospective buyer traffic and depressed sales.

The National Association of Home Builders/Wells Fargo sentiment gauge slumped to 46 this month, weaker than the most pessimistic estimate in a Bloomberg survey, from 56 in January, figures from the Washington-based group showed yesterday. All four regions showed declines. Readings less than 50 mean more respondents reported poor market conditions than good.

Beyond weather, borrowing costs for homebuyers have climbed since mid-2013. The 30-year fixed mortgage rate averaged 4.28 percent in the week ended Feb. 13, up from 3.35 percent in early May last year, according to data from Freddie Mac in McLean, Va.

At the same time, some builders, such as Atlanta-based Beazer Homes USA Inc. (NYSE: BZH), remain upbeat about the outlook for demand.

“While housing isn’t the screaming bargain that it was a year ago, it is still highly affordable in relation to household incomes and to alternative rental payment,” Chief Executive Officer Allan Merrill said on a Jan. 31 earnings call. “Household formations are occurring, and they drive new construction.”

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