Housing Starts Fall to Record Low in January

U.S. home builders broke ground in January on the fewest houses on record as a lack of credit and plunging sales exacerbated one of the worst real-estate slumps in the nation's history.

Single-family housing starts fell 12.2 percent in January to a record-low seasonally adjusted annual rate of 347,000 units, while multifamily starts fell nearly 28 percent to a rate of 119,000 units - also a record low. Regionally, starts plummeted nearly 43 percent in the Northeast and 29.3 percent in the Midwest. They also fell 12.8 percent in the South and 6.4 percent in the West.

January permit issuance, which can be an indicator of future building activity, declined 8 percent to a seasonally adjusted annual rate of 335,000 units on the single-family side and 1.6 percent to a rate of 186,000 units on the multifamily side. Regionally, permits were down 3.3 percent in the Northeast, 2.4 percent in the Midwest, 6.9 percent in the South and 1.8 percent in the West.

"Builders are continuing to exercise extreme caution in response to market conditions, particularly weak consumer demand and the large inventory of homes for sale that is being fueled by a constant flow of foreclosures," said National Association of Home Builders (NAHB) Chairman Joe Robson, a home builder from Tulsa, Okla. "We are certainly optimistic that the newly signed economic stimulus package - and particularly the enhanced first-time home buyer tax credit -- will help spark more consumer demand for homes going forward. However, until that happens, builders have little choice but to put a hold on new construction."

"Today's housing report was even weaker than most analysts expected," noted NAHB Chief Economist David Crowe. "Clearly, builders are waiting for consumers to return to the marketplace before putting their crews back to work, which is the prudent, though painful, thing to do at this time. Meanwhile, many qualified buyers are waiting for their employment outlook to become more secure before coming off the sidelines. Rising foreclosures and forced home sales continue to drive down house prices and provide further consumer hesitancy. Hopefully, the Administration's plan announced today will address the foreclosure crisis in a meaningful way and help keep many struggling owners from losing their homes.

Builders are struggling as record foreclosures swell the glut of homes on the market, undermining efforts to revive demand and lighten inventory by cutting prices. President Barack Obama today said his administration will use $75 billion to bring down mortgage rates and encourage loan modifications to stem repossessions.

Stocks gained on speculation the president’s plan will help ameliorate the decline in housing. The Standard & Poor’s 500 Index advanced 0.7 percent to 794.7 as of 9:45 a.m. in New York. Treasury securities fell.

Housing starts declined in all four regions, led by a 43 percent plunge in the Northeast and a 29 percent drop in the Midwest.

Obama’s housing recovery plan is seeking to help as many as 9 million people restructure or refinance their mortgages to avoid foreclosure. The Treasury Department today also said it will double the amount of stock purchases of Fannie Mae and Freddie Mac to as much as $200 billion of each company.

The president yesterday signed into law a $787 billion stimulus package that provides tax breaks and government spending designed to resuscitate the U.S. economy.

While foreclosure-driven declines in prices have helped boost sales of existing homes, they are depressing new-home purchases as builders can’t compete. New-home sales dropped in December to a record low 331,000 annual pace, according to figures from the Commerce Department.

At that pace, it would take a record 12.9 months to whittle down the number of new houses on the market, more than twice the five-to-six months supply the National Association of Realtors has said is consistent with a stable market. It also suggests that builders will continue to hold back on production in coming months.

“The past five months have been among the most difficult in U.S. economic history,” Toll Brothers Inc. Chief Executive Officer Robert Toll said on a conference call Feb. 11. Homebuyers are worried they may lose their jobs and won’t be able to sell their existing homes, he said.

Toll Brothers, the largest U.S. luxury homebuilder that uses a panelized building system, last week said first-quarter revenue plunged 51 percent.