New single-family homes at 17-year low

Starts and permits continue to be weak, but pickup in condo and apartment construction lifts overall housing starts.

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By Chris Isidore, senior writer

Housing non-starter
Weak housing starts and a low reading on the CPI for January are pushing markets lower.
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NEW YORK ( -- New construction of single-family homes fell to a 17-year low in January, according to a government report on the battered housing market released Wednesday.

At the same time, a pickup in apartments and condo construction resulted in a rare gain for housing starts overall.

Starts of single-family homes fell to an annual rate of 743,000 in the tenth straight monthly decline.

The level of single-family home building is down 5 percent from December, 34% from a year earlier and 60% from the record high reached only two years ago.

Still even with the continued decline in single-family homes, housing starts edged up to an annual rate of 1.02 million from the revised 1 million rate for December. The overall number for January was roughly in line with the forecasts of economists surveyed by

The increase was due to a gain in starts in multi-family units, such as condos and apartment buildings, which posted a nearly 18% jump from December. Starts of multi-family housing units are a much more volatile measure than single-family starts. The narrow rise in overall housing starts marked only the second rise in the last eight months for that reading.

Mike Larson, real estate analyst for research firm Weiss Research, said the weakness in single-family home construction isn't a surprise, given the weakness in demand. Potential buyers are having more trouble arranging for financing or selling their existing homes, and many are nervous about buying in a market with falling home values.

"The news about the Federal Reserve cutting rates may have gotten people out there looking, but the financing side of things has gotten tighter," Larson said. "The builders can see the problems and the excess inventory they have on their hands, and they're responding in a rational way to those realities. It wouldn't surprise me to see them cut further."

In addition, building permits for single-family homes - often taken as a sign of builders' confidence and a better look at the future of the market - fell to an annual rate of 673,000. That also marked the tenth-straight month of decline for that measure and, like the single-family starts, was a 17-year low.

The pace of overall permits fell to an annual rate of 1.05 million from revised 1.08 million in December. Economists had been looking for permits to come in at a 1.04 million rate.

The sharp falloff in building is one of the primary drags on the U.S. economy and, some economists argue, has already caused a recession to start.

The fourth quarter reading on gross domestic product, the broad measure of the nation's economic activity, showed that investment in residences trimmed 1.2 percentage points off GDP in the fourth quarter alone.

Contractors specializing in residential construction have cut nearly 350,000 jobs from their payrolls since the peak of building two years ago, according to seasonally-adjusted Labor Department estimates. Losses in the sector have been tempered by continued strength in non-residential construction but that too is now showing signs of a slowdown.

Sales and prices for both new and existing homes have been in a near free-fall for most of the last year, and the most optimistic forecasts don't see a pickup in either sales or home values until the second half of 2008. Some forecasts are that prices and sales could continue to fall into at least 2009.

But there is a benefit for the battered housing market from the near cutoff in starts and permits. A separate Census Bureau report showed a record 195,000 completed homes for sale at the end of December, the supply of all new homes available for sale, including those under construction and those not yet started, stood at a 9.6 month supply. That glut of new homes for sale is cutting into the value of both new and existing ones.

In the face of weak demand for new homes, the only way to bring supply and demand back into balance is to drastically cut into production of new homes and wait for the weak demand to start to work through inventory.

The downturn in housing and home building has hammered the results of the nation's largest builders.

Earlier this month, D.R. Horton (DHI, Fortune 500), the No. 2 home builder by revenue, reported a much steeper-than-expected loss in the fourth quarter. Luxury home builder Toll Brothers, the No. 7 builder, reported a sharp drop in sales when it released preliminary numbers at the beginning of this month, saying it is "not yet seeing much light at the end of the tunnel."

That followed a report last month from No. 3 Lennar (LEN, Fortune 500) that showed a $1.25 billion fourth-quarter loss, the largest in the company's history. In addition No. 1 Centex (CTX, Fortune 500), No. 4 Pulte Homes (PHM, Fortune 500) and No. 5 KB Home (KBH, Fortune 500), all reported fiscal fourth-quarter losses far worse than forecasts in January, as did No. 6 Hovnanian Enterprises (HOV, Fortune 500) when it reported fiscal fourth quarter results in December.

KB Home CEO Jeff Mezger told investors last month that "as we enter 2008, we see no indication markets are stabilizing." To top of page

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