Housing starts rebound but permits fall

Starts bounce back from 9-year low, but builders pull back on plans amid worries about real estate market and subprime mortgages.

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Housing starts rebounded from a nine-year low in February, according to the latest government reading on the battered home-building industry, but ongoing weakness led builders to pull back on plans for more housing.

Starts of new homes jumped to an annual rate of 1.53 million last month from the revised 1.40 million pace in January, the lowest in nine years. Economists surveyed by Briefing.com had forecast starts would rebound to a 1.45 million annual pace.

While housing starts rebounded from a nine-year low in February, a drop in permits showed builders still have a cautious view about the battered market for new homes.
While housing starts rebounded from a nine-year low in February, a drop in permits showed builders still have a cautious view about the battered market for new homes.
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But housing starts can be affected by weather -- and a particularly warm and dry December nationwide meant that builders began projects in that month which would normally have started in January, thus depressing the January numbers.

The weather's impact on housing starts is also evidenced in the numbers broken down by region. The Northeast saw February starts fall nearly 30 percent from January, while starts fell 14 percent in the Midwest. But these figures were offset by an 18 percent jump in starts in the warmer clime of the South - the region that accounts for about half of the nation's home building - and a 26 percent rise in the West, which like the South has many areas with year-round construction.

The February starts, while a big jump from January, were still 28 percent below February 2006 numbers, and were the fifth weakest reading since the beginning of 1998.

Building permits, which generally are not as affected by weather as are housing starts, fell to an annual rate of 1.53 million from the 1.57 million pace in January.

Worse than expected

The drop was bit worse than economists' forecasts for permits, which are seen as a measure of builder's confidence in the market. They had looked for the permits to slip to only a 1.55 million rate.

David Seiders, the chief economist for the National Association of Home Builders, said he doesn't believe that the downturn in home building has yet found a bottom.

"With the weather volatility, I think the permits is a better representation of the true trend," said Seiders. "I think we'll see a drop off in starts in March, and certainly no take off after that."

Wachovia economist Phillip Neuhart also said he sees continued weakness in the home building market, but said Tuesday's report was a positive one.

"We continue to believe that housing starts have further to fall, but this release is certainly some good news in a sea of bad," he said.

Permits for single-family homes fell to a nine-year low and are now down nearly a third from year-ago levels. Permits got a boost from multi-family homes, such as apartment buildings and condos.

The drop in new homes in the pipeline, while a hit to the U.S. economy and home builders and contractors, could be a necessary step for a recovery in the real estate market and home prices.

One factor that's caused various home price measures to show the deepest and most widespread decline on record is a glut of new and existing homes on the market.

Builder confidence

A separate survey of builders' confidence by the National Association of Home Builders released Monday showed that index posting a decline in March - the first drop since hitting a 15-year low in September. Builders reported seeing some effect from the rising problems in the subprime mortgage sector.

"A surprising number say they've noticed some negative impact of the tightening of lending standards on their sales," said Seiders. "I don't expect the builders to be cranking out the starts on a sustained basis for a while. The mortgage market problems only are likely to add to that."

The slump in housing has hit home builders hard.

The CEO of D.R. Horton (Charts), the No. 1 U.S. builder, told an investor conference earlier this month that "'07 is going to suck."

Earlier this month New Jersey builder Hovnanian Enterprises (Charts) became the latest to report a loss following losses at Pulte Home (Charts), KB Home (Charts), and Centex (Charts). Even builders still reporting earnings, such as D.R. Horton and Toll Brothers (Charts), have reported sharply lower income.

Subprime woes hits builders' confidence

Don't expect quick rebound in housing prices

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