Pace of New Home Construction Fell Sharply in December

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Pace of New Home Construction Fell Sharply in December

 

By VIKAS BAJAJ

New housing starts fell sharply in December and building permits fell to their lowest level since May, the government reported today.

The numbers appear to reflect the effect of the slight slowing in the housing market from a peak established during the summer of last year. The Commerce Department said the number of homes that builders started constructing last month fell 8.9 percent, to an annual pace of 1.93 million, and the number of permits issued dropped 4.4 percent, to a pace of 2.07 million.

Cooler than normal weather and heavy rain in the West last month may have also depressed construction activity, analysts said.

Economists had expected housing starts at an annual pace 2.04 million and permits to total 2.1 million, according to a survey by Bloomberg News.

"Of that 8.9 percent, maybe a third of it was weather-related," said Nariman Behravesh, chief economist at Global Insight. "The rest of it is underlying trend of weakness in the housing market. You are seeing pervasive signs of weakness."

Housing sales dipped and inventories rose through the last several months of 2005 after a booming spring and summer, and several large home builders have said they are having to offer promotions to sell properties that were previously receiving multiple offers.

In December, housing starts dropped the most in the Midwest, 23.6 percent, and the West, 21.7 percent, of the four regions. Construction activity in the South rose 5.2 percent, possibly reflecting the increase in construction in hurricane-affected areas of the Gulf Coast. In the Northeast, starts fell 14 percent.

Prices, however, have not fallen from comparable levels a year earlier and few economists expect them to do so, in large part, because mortgage rates still remain near historical lows.

Housing analysts also caution that the data on the market become less reliable at the end and beginning of the year because sales tail off significantly in the winter. The state of the market will become far clearer in the spring and summer months when most home sales occur.

The home construction data are particularly unreliable; the housing start statistic carries a margin of error of plus or minus 8.6 percentage points. The new permits figure has a margin of error of plus or minus 4.1 percentage points.

In 2005, housing starts rose by 5.6 percent, to 2.06 million, of which 1.71 million were single-family homes, the highest in any year. Permits issued rose 3.4 percent, to 2.14 million homes.

The National Association of Home Builders estimates that housing starts will drop about 6 percent, to 1.94 million, in 2006. "Builders are both reporting and expecting to see slowing demand," Michael S. Carliner, an economist at the association. "It's no longer quite so much of a sellers' market." But he added that "2005 is a pretty high standard of comparison."

Separately, the Labor Department reported today that new claims for unemployment insurance fell by 36,000 last week, to 271,000, their lowest level in nearly six years. The number of continuing claims fell by 158,000, to 2.53 million; that is down about 6.3 percent from the comparable period a year earlier.