Popping permits, rising single-family starts, and surging confidence start the year. By Daniel Walker Guido

While Federal Reserve chair-man Alan Greenspan did his best last month to warn Americans that the recent economic recovery could yet sour, the housing industry continued to rally as it began the year with steady increases.

Warmer than usual weather throughout much of the nation and mortgage rates on the decline again after briefly cresting 7 percent in December, enabled home building to hammer on through the typical down months of winter. California and the West saw starts rise for the second consecutive month. Florida remained strong, although the rest of the South dipped as interest rates spiked. The Midwest and Northeast also saw starts plunge. But with rates declining, home builders nationwide report they are increasingly confident the industry is back on solid ground and poised to challenge last year's sizzling pace.

John Stanley, home building analyst for UBS Warburg, took issue with newspaper and TV news stories that indicated home building had declined in December. "As usual, the headline news is misleading. Overall starts were down last month, but single-family starts rose 3.6 percent for the month, while permits increased 3.1 percent. And we estimate public builder orders rose 11 percent in 2001. In short, an astounding showing for the market in a recession year, and further strong evidence of the consolidation trend underway in the industry." Meanwhile, Stanley reported widespread, and hopefully temporary, declines in stockprices throughout the sector, which he attributes to Greenspan's speech.

The surge in single-family starts and permits in a normally frigid, slow month in much of the nation, warmed builder hearts, causing many to send in rosy reports of increased sales, and to predict that sales, revenues, and profits will rise all year. Builders' confidence was illustrated in the four-point gain in the NAHB's Housing Market Index (HMI) to 61 in January from December 2001. The HMI is a point above where it was in August 2001 and is at its highest reading since November 2000.

"This substantial gain shows that builders' confidence in the single-family market has fully rebounded in the wake of Sept. 11, and the signs of economic weakness that were emerging at that time," says Bruce Smith, former NAHB president. Smith attributes the swift recovery from a 47 reading in October 2001 to improving consumer confidence, favorable mortgage rates, and Americans understanding the significant investment gains that can be realized in home ownership.