U.S. Housing Starts Rise 2.8% in January

More progress in the U.S. housing sector, as housing starts rose 2.8% in January to a 591,000 seasonally adjusted annual pace, the U.S. Commerce Department announced Wednesday. That marked the strongest housing start pace since July.The consensus expectation among economists surveyed by Bloomberg News had been for housing starts to hit a 580,000 annualized rate in January after attaining a revised 575,000 pace in December, and 579,000 in November. Housing starts dropped to a cycle-low of 479,000 in April.

Starts are now up 21.1% on a year-over-year basis.

In January, single-family-home starts increased 1.5% to a 484,000 annualized rate. By region, this category increased 15.9% in the East and 5.2% in the West. They dipped 0.4% in the South, and declined 5.1% in the Midwest.

Building permits, considered a leading indicator of residential construction, declined 4.9% to an annualized rate of 621,000. Even so, building permits are still up 16.9% compared to a year ago.

Support for GDP

Economists follow the housing-start statistic because of the large role residential real estate has played historically in the U.S. economy. Housing affects commerce in companion sectors, such as furniture, appliances, insurance and landscaping, among others. Hence, a sustained increase in housing starts usually gives upward support to U.S. GDP.

However, economists also caution that monthly housing start data contain a wide margin of error, and revisions can be large. In addition, housing analysts underscore that it can take three to five months for a housing trend to form, and retrenchments are possible.

The January report provides another hopeful data point for the U.S. housing sector, but again there are qualifiers. First, the rise in housing starts is coming from a very low base, due to the pronounced 2007-09 recession. Hence, large year-over-year percentage gains will be easy to achieve. Second, we'll need a few more months to see if this recovery in starts has "legs." Builders will have to become confident that more homebuyers will enter the market in 2010.
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