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Behind the Numbers: Housing Starts Fall

Associated Press
Builders started construction on fewer U.S. homes in December.

It wasn’t exactly a banner December for the home-building industry.

The nation’s builders started construction on 4.1% fewer homes compared with a month earlier. Construction decreased to a seasonally adjusted annual rate of 657,000 in December, the Commerce Department said Thursday.

But the news wasn’t all gloomy. The main reason for the monthly decline was a more than 20% drop in construction of multifamily homes with at least two units, a part of the market that tends to swing around a lot.

Other data were more positive. Analysts often pay more attention to the single-family sector, which made up more than 70% of housing starts in December. Single-family construction was actually up 4.4% from a month earlier and reached the highest level since April 2010 – a time when builders were ramping up construction in response to a government tax credit for first-time home buyers.

The housing sector is gradually, tentatively, slowly healing after a collapse in prices that started 5 1/2 years ago. There have been some encouraging signs of late, and builders have been growing more optimistic.

But it’s clear that there’s a long way to go. Since 1959, there have been about 1.5 million new homes started per year, on average. Last year, construction was started on only 607,000 homes – the best year since 2008, but still the third-worst year since the government began keeping records.

Here’s what some industry watchers had to say:

Paul Diggle, economist, Capital Economics: “With demand set to improve this year, we think that homebuilding is past the low-water mark and will rise modestly in 2012. We expect housing starts to rise to about 750,000 this year in response to stronger demand, which will be supported by an extremely favorable valuation and affordability environment and a slight loosening in credit conditions. That said, with household formation still low and new builds competing with a steady influx of foreclosed properties, it may not be until 2015 at the earliest that starts reach healthy levels of around one million a year.”

Michael Gapen, economist Barclays Capital: “We view the softness in the headline number as mainly reflecting month-to-month volatility in the multifamily starts component and see underlying trends in both single- and multi-family starts, along with building permits, as suggesting the recent modest momentum in home building remains in place. We continue to see residential investment as making a small positive contribution to (fourth-quarter economic) growth and believe housing will not pose a drag on the recovery as it has in the past. “

Michelle Meyer, economist, Bank of America-Merrill Lynch: “The drop in multifamily starts reversed the gain in November, which reflects the noisy nature of the data. In 2011, multifamily starts are up 55% while single-family are down 9%. Looking ahead to this year, we expect a similar size gain in multifamily starts this year and little change in single family starts, leaving total housing starts to average about 710,000, up from 607,000 in 2011. While this is a decent percentage gain, it is only a modest pickup in the number of homes constructed, therefore only providing a small boost to the economy.”

Kevin Logan, chief U.S. economist, HSBC: “Month-to-month changes in housing starts are erratic, not least of all because of variations in the weather across the country. Not much should be made of one month’s decline. For the year, housing starts rose 3.7% compared to 2010. Starts of multifamily residences provided all of the strength… This pattern is likely to persist in 2012, with strong gains in multifamily starts outpacing the single-family sector.”

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New home construction gathers momentum

New home construction slowed slightly in December after a strong November showing, but was still much more active than a year earlier.

Rebuilt Traditional Home

This seven-bedroom house with swimming pool and 14 acres of land near Salisbury in southwest England was entirely refurbished in 2000.

Freddie Mac: Speedy Recovery Seems Unlikely in 2012

“Perspectives on the housing market
depend on where you sit,” according to Freddie Mac’s U.S.
Economic and Housing Market Outlook

for January.  The monthly forecast noted
that existing home sales increased in November, the inventory of unsold homes
decreased to a six to seven month supply, and Freddie Mac’s economists predict
home sales will grow between 2 and 5 percent in 2012. 

But
there is “a historically large gap between sentiments of buyers and sellers.”  Nearly 80 percent of American households
believe it is a good time to buy a home, but sellers are not as happy, with
only 7.6 percent who responded to a Mortgage Bankers Association survey
believing that it is a good time to sell. 
If this gap doesn’t narrow, Freddie Mac’s economists say, the
housing-market recovery will be delayed.

The monthly report titled Toasting the New Year with a Glass Half Full
concludes that, while the economy is undoubtedly in a better place that the
same time a year ago, a speedy recovery still seems unlikely this year. 

Other highlights of the Outlook

  • Economic growth will likely
    strengthen to about 2.1 percent in the first quarter.
  • The current U.S. unemployment rate
    of 8.5 percent is likely to increase after seasonal gains are reversed.
  • Mortgage rates are projected to
    remain very low, at least in the beginning of 2012.

Frank Nothaft, Freddie Mac, vice
president and chief economist said, “With the new year comes a sense of
cautious optimism. There are some positive signs in the job market and consumer
confidence; housing is starting to raise hopes for continued gradual economic
recovery. But the economy still is giving some mixed messages.”

…(read more)

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