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Tuesday, March 28, 2006

Housing Starts in January Hit 33-Year High

By VIKAS BAJAJ at New York Times

Home construction jumped 14.5 percent to a 33-year high last month, the Commerce Department reported yesterday, a sign that builders may have taken advantage of unseasonably warm weather in January.

The report surprised many analysts because home sales have slowed and the number of unsold homes has risen in many markets around the country in the last several months. Many home builders have also been saying that they are offering bigger incentives to lure buyers.

In January, builders began constructing homes – known as housing starts – at an annual pace of 2.28 million, the fastest level since 1973, after a drop of 6.9 percent in December. Permits for new construction increased 6.8 percent, to 2.22 million, after falling 4.1 percent in December. Compared with January 2005, housing starts were up 4 percent, the government reported.

Warmer wather tends to spur construction activity, and the average temperature in the United States in January, at 39 degrees, was the highest ever recorded by the government, an increase of 8.5 degrees over the historical average for the month. The unusual weather has also been cited for stronger retail sales and weaker industrial production, the latter because utilites produced less electricity. “It is a time-tested pattern,” said David F. Seiders, chief economist for the National Association of Home Builders, noting that builders may have started work on homes that they sold ahead of construction at the end of last year. “February has essentially returned to normal conditions, suggesting to me that we will see a substantial decline in housing starts.”

The effect of the weather could further be magnified because most economic data, including housing starts, is adjusted to account for seasonal weather and other patterns. Because January is usually one of the coldest months of the year, those adjustments would have bolstered the data that the Commerce Department reports for the month even if construction were flat. Before adjusting for seasonal factors, housing starts were up 11.3 percent from December.

“Builders were able to build and so they were out there doing it, and the seasonal adjustment process pumped it up,” said Joshua Shapiro, chief economist at MFR, a research firm in New York.

Housing start dat is also subject to a significant margin of error, plus or minus 9.9 precentage points in January, because it is based on a relatively small smapling of data.

Just last week, two large home builders warned about slowing sales: Toll Brothers, the nation’s largest luxury home builder, said orders fell21 percent in the three months ended Jan. 31 compared with the same period a year ago, and KB Home said more buyers were canceling orders and fewer were signing contracts in the first two months of the years compared with 2005.

But even as they acknowledge the slowdown, many housing industry officials are generally optimistic about the year to come, given that mortgage interest rates remain low and that the economy has been adding jobs at a stronger clip in recent months. The average interest rate on a 30-year fixed rate mortgage was 6.15 percent in January, up from 5.71 percent a year earlier, according to Freddie Mac, but that is still low by historical standards.

“Everybody would agree that 2006 won’t be 2005,” said William Emerson, chief executive of Quicken Loans, a mortgage lender based in Livonia, Mich. “But it will be strong.”

Home building activity was strongest in the Northeast, where starts jumped 29.2 percent; followed by the Midwest, up 23.7 percent; the West, 16.9 percent; and the South, 8.7 percent.

Separately, the Labor Department reported that initial claims for unemployment insurance climbed by 19,000 last week, to 297,000 for the week ending Feb. 11. At 2.5 million, the total number of jobless claims at the end of Feb. 4 was down 7 percent from a year earlier.

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