US housing starts dip but remain at solid pace in January

Wednesday 20 February 2013 14.40
US builders started work on 890,000 new houses last month
US builders started work on 890,000 new houses last month

US homebuilders began work at a slower pace in January, though the level was still the third highest since 2008, new figures show.

The pace of building was viewed as a sign of further strengthening in residential property.

The US Commerce Department said that builders started construction at a seasonally adjusted annual rate of 890,000 last month.

This was down 8.5% from December, when activity had hit an annual rate of 973,000. The December performance was the best since June 2008.

Applications for building permits rose to an annual rate of 925,000 in January, 1.8%higher than December, which had been the high point since mid-2008.

The pace of construction of single-family homes rose 0.8% last month, but apartment construction, which is more volatile, dropped 24.1%.

The US housing market is slowly regaining its health after stagnating for roughly five years after the housing boom collapsed. Steady job gains and near-record-low mortgage rates have encouraged more people to buy.

The steady rise in prices partly reflects fewer homes for sale. The supply of previously occupied homes for sale has reached its lowest level in more than a decade.

And the pace of repossessions, while still rising in some states, has slowed sharply on a national basis. That means fewer low-priced repossessed homes are being dumped on the market. Those trends, and the likelihood of further price gains, have led builders to step up construction.

Last year, builders broke ground on the most homes in four years. For all of 2012, builders started work on 780,000 homes. That was still only about half the annual number consistent with healthy markets. But it represents a 28% jump from 2011.

And it was the most housing starts since 2008, when construction was still falling after the housing bubble burst more than six years ago. Sales of new homes jumped nearly 20% last year to 367,000, the most since 2009.

But many economists do not foresee a full housing recovery before 2015 at the earliest. The National Association of Home Builders said yesterday that confidence among US homebuilders slipped in February from a six and a half year high in January.

Many builders reported less traffic by prospective customers before the critical spring home-buying season begins.

The home builders' sentiment index dipped to 46 in February from 47 in January. It was the first monthly decline in the index since last April. Readings below 50 suggest negative sentiment about the housing market.

The last time the index was at 50 or higher was in April 2006, when it was 51. It began trending higher in October 2011, when it was 17.

Many builders are facing higher costs for building materials and having trouble obtaining financing for construction. Some also are facing a shortage of workers in markets where residential construction has picked up sharply, such as Texas and Arizona.

Though new homes represent only a fraction of the US housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics from the home builders.

US wholesale inflation still mild despite increase

US wholesale prices rose only slightly in January after three declines in a row - the latest sign that inflation is posing no threat.

It means the US Federal Reserve has room to keep interest rates at record lows without worrying about igniting inflation.

The Labor Department said today that its producer price index rose 0.2% last month, the first increase since September. Petrol and other energy prices fell, while food prices jumped 0.7% after dropping sharply in December.

The index measures the cost of goods before they reach consumers. Wholesale prices are what manufacturers and farmers receive for their products.

In the past 12 months, wholesale prices have risen just 1.4%, down from a 4.1% increase for the 12 months that ended in January 2012.

Excluding the volatile food and energy categories, core prices rose 0.2% in January. They have risen a mild 1.8% over the past 12 months.

Wholesale petrol prices dropped 2.1% in January, the department said. Since then, pump prices have risen sharply and that is likely to push up inflation at the wholesale and consumer levels in coming months.

Vegetable prices jumped 39% in January, led by increases in the cost of broccoli, cauliflower and lettuce. Cheese, soft drink and confectionary prices also jumped. Meanwhile, pharmaceuticals and communications equipment led core prices higher.

Higher wholesale prices do not always mean consumers will soon pay more. High unemployment and weak pay gains are making it difficult for retailers to pass on higher costs to consumers.

Low inflation means consumers can spend more on other goods and services, which helps the economy. As long as the inflation outlook stays mild, the Fed said it plans to keep the short-term interest rate it controls near zero until the unemployment rate falls to at least 6.5%.