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U.S. Housing Starts Fall 7.9% to 2.12 Million Rate in February
Courtney Schlisserman in Washington


March 16 (Bloomberg) -- The pace of U.S. housing starts fell less than expected last month, suggesting housing demand is holding up in the face of higher mortgage rates.

Builders broke ground on new homes at an annual rate of 2.12 million in February, down 7.9 percent from January's revised 2.303 million, the Commerce Department said today in Washington. Building permits, a sign of future construction, fell 3.2 percent to an annual rate of 2.145 million.

Builders kept up the momentum in February after unusually mild January temperatures let them get an early start on the construction season. Housing starts probably will slow later this year as mortgage rates and selling prices put new homes out of the reach of more would-be buyers.

``Housing starts are still on a rising trend despite all this talk about housing cooling off,'' Kevin Logan, chief U.S. economist at Dresdner Kleinwort Wasserstein in New York, said before the report. ``With a lag we should see housing starts fade. The second quarter will really tell the tale.''

Economists expected starts to fall to a 2.03 million rate in February from the prior month's originally reported 2.276 million, according to the median of 59 forecasts in a Bloomberg News survey. Estimates ranged from 1.95 million to 2.175 million.

Permits were forecast to fall to a 2.11 million pace, from 2.217 million, according to the median of 23 estimates in a Bloomberg survey. Projections ranged from 2.05 million to 2.22 million.

Single-Family Starts

Starts of single-family homes fell 2.3 percent last month to a 1.8 million-unit rate. Builders started work on multifamily homes such as townhouses at an annual rate of 320,000, down 30 percent.

Starts fell in three of four regions. They fell 24 percent in the Northeast to 182,000, 11 percent in the South to 1.04 million and 10 percent in the Midwest to 326,000. Starts rose 7.9 percent in the West to 571,000.

The number of homes under construction rose 0.6 percent last month to 1.428 million, the most since February 1974. Housing completions fell 1.7 percent to 2.022 million units at an annual rate.

The number of housing units authorized, but not yet started, fell 1.1 percent to 212,800.

New Home Sales

New home sales probably will decline 7.7 percent this year as rising mortgage rates and prices make housing affordable for fewer people, the National Association of Realtors forecast on March 13.

Changes in housing starts can lag fluctuations in sales by six months to a year, economists said. New home sales peaked in July. The government will release February's sales report on March 24.

As home sales decline, price increases will slow, said Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., the ninth biggest U.S. homebuilder by stock market value.

``I think it's very likely we're going to see a leveling off or at least a slowing in the appreciation rate,'' Hovnanian said in an interview on March 8. ``Our view is it's going to be a very soft landing,'' for housing.

The median new-home price will increase 5.4 percent and the 30-year mortgage rate will reach 6.9 percent by the end of the year, according to the National Association of Realtors. In December, the median new-home price was 6.7 percent higher than a year earlier, according to a government report.

Mortgage Rate

The average rate on a 30-year fixed mortgage was 6.25 percent in February, up from 6.15 percent the month before, according to Freddie Mac. Based on last month's average, interest and principal costs for every $100,000 of a loan would be $615.72.

The housing market accounted for 55 percent of economic growth last year, according to a Merrill Lynch & Co. report released last month. Growth will probably reach a 4.7 percent rate this quarter, the strongest in more than two years, before slowing to 3 percent by the end of 2006, according to a Bloomberg survey taken from Feb. 27 to March 7.

http://www.bloomberg.com/apps/news?pid=10000103&sid=ayoerqXUxTXM