For the second day in a row, the housing market received a bit of good news as HUD and the Census Bureau reported that total housing starts in January were at 1,012,000 units, a 0.8 percent increase compared to the revised December estimate of 1,004,000 units.
But the positive number was due largely to a 17.6 percent rise in the construction of multifamily units of 5 or more. Research group Global Insight said this jump was mostly payback for a 39.2 percent December drop.
"The weather played a role in lifting January's numbers," said Patrick Newport, U.S. economist for Global Insight.
Newport said December was wet and cold in the Midwest, which depressed starts in December, setting the stage for a January rebound.
Although the slight jump in the total starts number is welcome news, it's still 27.9 percent below the revised January 2007 rate of 1,403,000 units.
Single-family housing starts in January were at 743,000, 5.2 percent below the December 2007 number of 784,000 and 33.8 percent down year-over-year.
Throughout the country, single-family starts gained 43.8 percent in the Northeast in January 2008 compared to December 2007; stayed even in the Midwest; slid 9.8 percent in the South; and dropped 20.3 percent in the West.
"Single-family starts is where most of the overbuilding took place and the industry is still trying to work through the inventory to bring supply and demand back into balance," said Bernard Markstein, senior economist at the NAHB.
Markstein said the real problem has been weak demand for housing and the NAHB sees some improvement as yesterday's HMI numbers indicated that traffic was up at builders' model homes.
Global Insight's Newport said one of the most significant indicators is the drop in building permits. He said building permits are significant for at least three reasons: They are accurately measured; they are not influenced much by weather; and finally, they are a leading indicator of future construction activity.
Total building permits in January were at 1,048,000, 3 percent below the revised December rate of 1,080,000 and 33.1 percent down year-over-year.
Single-family building permits for January were at 673,000, a decline 4.1 percent compared to December 2007 and down 40.3 percent year-over-year. Newport said that since peaking in July 2005, building permits have plunged 61 percent, dropping by one-third in the last six months alone.
"We expect to see permit drops at least for the next three to six months, and then things will begin to turn around," said Newport, who added that strong future demand for new housing based on new household formations coupled with demand for second homes will start to bring back demand later this year.
Carl Reichardt, a housing analyst with Wachovia Capital Markets, agreed with Newport's assessment. He said while today's numbers showed the first sequential increase in starts since October 2007 and yesterday's HMI numbers show that current traffic conditions have improved slightly, overall builder sentiment on future conditions remains weak despite the upcoming selling season.
"We expect further substantial declines in housing start activity through at least this spring," Reichardt concluded.