Housing starts fall, but permits soar

NEW YORK (CNNMoney.com) -- Home construction fell in December, government data showed Wednesday, while the number of building permits issued in the month rose.

Construction of new homes fell to an annual rate of 557,000 during the month, down 4% from the revised November rate of 580,000, the Commerce Department said.

Economists surveyed by Briefing.com expected December housing starts to decline to an annual rate of 572,000.

But starts were up 0.2% versus the 556,000 rate in December 2008. It was the first year-over-year increase since March 2006, when starts rose 5.6%.

The decline in new home construction was led by a 6.9% drop in single-family activity, which offset gains in the multi-family sector.

"While starts registered another weak month, they remain within a range that has held for more than a year," said Adam York, an economist at Wells Fargo.

Analysts said the drop in construction activity was due in part to the weather.

Temperatures were unusually high in November and "some homes that would have been started in December were instead started in November," Patrick Newport, an economist at IHS Global Insight, wrote in a research report.

Housing starts surged nearly 9% in November.

At the same time, many builders put new projects on hold late last year amid uncertainty surrounding the government's first time homebuyer tax credit.

As a result, applications for building permits plunged in September and October, which in turn depressed housing starts in December.

"Now that the credit will benefit almost all homebuyers, not just first-timers, and will run until June 3, [builders] are preparing for increased demand," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Indeed, the number of building permits issued during December jumped 10.9% to a seasonally adjusted annual rate of 653,000.

It was the biggest increase since June 2008 and surprised economists who had forecast a 0.7% decline in building permits.

Given the surge in building permits during December, "starts should now be expected to rebound strongly over the next few months," Shepherdson said.

Still, many builders remain worried about the strength and sustainability of a recovery in housing with unemployment at 10% and a large number of foreclosed homes still on the market, York said.

On Tuesday, the National Association of Home Builders said its index of builder confidence declined one point to 15 in January.