Home Starts Rise to Highest Since 1973

Feb. 16 (Bloomberg) -- Builders in the U.S. took advantage of the warmest January on record to break ground on the most new houses in more than three decades.

Construction began on homes at an annual rate of 2.276 million, up 15 percent from December's revised 1.988 million and the most since March 1973, the Commerce Department said today in Washington. The increase follows the best year ever for sales.

Economists argued over whether the housing market owes its resilience entirely to a warm winter or an economy that's rebounding from a fourth-quarter slowdown. The outcome may determine how much the Federal Reserve raises interest rates after 14 consecutive increases since June 2004.

``Housing is in the process of slowing down,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``Whenever you get record warmth in January and builders can get out there and do their thing, it's going to affect the numbers.''

``Don't bet the ranch on that scenario,'' said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio. While weather was a factor, ``you really shouldn't sell the American consumer short and housing is one aspect of that.'' A decline in starts this year will be gradual, he said.

A separate report today showed manufacturing in the Philadelphia area accelerated this month, another sign the economy is gathering momentum. The Fed Bank of Philadelphia's general economic index rose to 15.4, the highest since August, from 3.3 in January. Readings above zero signal expansion.

`Significant Rebound'

Fed Chairman Ben S. Bernanke told the Senate Banking Committee today that ``it appears that the first quarter will see a significant rebound from the fourth quarter'' in terms of economic growth.

Shares of builders climbed after the report. The Standard & Poor's 400 Homebuilding Index rose 1 percent at 12:20 p.m. in New York to 522.83. The S&P 500 gained 0.42 percent.

Last month was the warmest January in more than 110 years in much of the country. Starts were expected to rise to a 2.02 million annual rate from December's previously reported 1.933 million, based on the median forecast in a Bloomberg News survey of economists.

``While some of the strength in January can be attributed to favorable weather, it's nonetheless clear that construction is extremely strong,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland.

Building Permits

Building permits, an indicator of future construction, unexpectedly rose 6.8 percent to a 2.217 annual rate.

Starts of single-family homes rose 13 percent last month to a record 1.819 million-unit rate. Construction of multifamily homes such as townhouses rose 22 percent to a 457,000 rate.

Construction increased throughout the country. Housing starts rose 29 percent in the Northeast, 24 percent in the Midwest, 17 percent in the West, and 8.7 percent in the South. Starts at an annual rate of 1.177 million in the South were the highest since February 1984.

The broad-based regional gains imply ``some underlying support from non-weather factors,'' said David Greenlaw, chief U.S. fixed income economist at Morgan Stanley in New York. ``We expect to see only a gradual cool-down.''

In other reports today, prices of imported goods into the U.S. rose 1.3 percent, the first increase in three months. The number of people filing first-time claims for jobless benefits Rose to a level that still points to a robust labor market.

Warmer Weather

Temperatures in January averaged 39.5 degrees nationwide, the highest in more than a century of record-keeping at the National Climatic Data Center in Asheville, North Carolina.

``Historically, construction and starts have been highly sensitive to weather conditions during the winter months,'' Robert Mellman, an economist at JPMorgan Chase & Co. in New York, said in a note to clients.

The number of homes under construction in January rose 1.2 percent to 1.421 million, the highest since February 1974.

January housing completions rose 1.1 percent to 1.971 million units at an annual rate, from 1.95 million. In a sign construction may cool in coming months, the number of housing units authorized but not yet started, fell 3.8 percent to 218,200.

Home order cancellations increased the first two months of KB Home's fiscal year and net orders for new homes are lower than a year earlier, the sixth-largest homebuilder by stock market value said in its annual report on Feb. 10.

Affordability

``If the current trends do not improve, we may be required to moderate our revenue guidance,'' KB Home said in the report. The company sells most of its houses from February through June.

Housing affordability fell to the lowest level in more than 14 years in the fourth quarter, according to the National Association of Realtors. Higher mortgage rates and prices probably will slow sales of new and existing homes to a combined 7.91 million from 2005's record 8.354 million, the group said.

The average rate on a 30-year fixed mortgage was 6.15 percent in January, according to Freddie Mac. While that was below December's 6.27 percent, it exceeded year-earlier levels and has risen so far this month.

The 30-year mortgage rate probably will rise to 6.9 percent by the end of the year and the median price of a new home will increase 5.7 percent, a slower gain than last year's 7.4 percent, the National Association of Realtors said on Feb. 7.

`Not Smoking Hot'

The Mortgage Bankers Association's weekly index of mortgage applications to purchase or refinance homes fell last month and has continued to decline in February, dropping 7.3 percent last week.

``It's not smoking hot as it was four months ago but the bottom definitely has not fallen out,'' of the housing market yet, Anthony Hsieh, president of Lending Tree.com in Charlotte, North Carolina, said in an interview.

Changes in housing starts can lag fluctuations in sales by several months, economist said. Housing accounted for 55 percent of the rise in gross domestic product in 2005 and the effect of rising prices on wealth accounted for $120 billion of consumer spending, Merrill Lynch economists said in a report on Feb. 10.

The U.S. economy probably will grow at an average 3.3 percent rate this year, slower than 2005's 3.5 percent, according to a Bloomberg survey taken from Jan. 31 to Feb. 8.