Features and tRends

(Feb. 16, 2006)

HOME CONSTRUCTION INCREASES IN JANUARY

Construction of new homes and apartment homes, despite forecasts of a housing slump, spiked in January at a more rapid pace in more than in the past three decades.

The Commerce Department reported Thursday that building productivity was up more than 14 percent last month when compared to December, pushing construction to a seasonally adjusted annual rate of 2.276 million units.

That was the fastest construction rate since March 1973, but it was expected to be a one-time treat caused by unusually warm weather in January that alowed builders to start work on more homes. Analysts are predicting that home construction will fall off this year as the nation's five-year housing boom quiets down.

In other economic news, the number of Americans filing for unemployment benefits increased to 297,000 last week, up 19,000 from the previous week. The increase was larger than economists had expected but they warned against reading too much into the one-week spike. They said the level still remained in a zone that indicates a strong job market.

The weather played a major role in the surge in construction last month, which was the mildest January in over a century. Some economists said that a 6.8 percent rise last month in building permits, which are not affected by the weather, could be a sign that home building will not slow as much this year as originally thought as long as mortgage rates do not rise too quickly.

The 14.5 percent rise in construction activity in January trailed a 6.9 percent dip in December. Analysts had expected a rebound but the actual increase was far above their expectations. Still, they are projecting that construction of new homes and apartments will slow by about 6 percent in 2006 from last year's 2.07 million units.

Permits are considered a good indication of future activity. Despite slowing predictions, they rose in January to an annual rate of 2.217 million units. Applications for building permits had been down 4.1 percent in December.

Sales of both new and existing homes have set records for five consecutive years as unusually low mortgage rates have spurred demand. However, mortgage rates have started rising, reflecting a continued campaign by the Federal Reserve to boost interest rates in an effort to keep inflation pressures from increasing.

Forecasters believe that sales of both new and existing homes will decrease slightly this year and prices, which have been surging, will rise but at a slower pace than the double-digit gains seen in much of the country in recent years.

The National Association of Realtors reported Thursday that the slowing in sales that started at the end of 2005 has yet to dampen price gains.

The Realtors found that 72 metropolitan areas around the country reported double-digit gains in median home prices for existing homes sold in the last three months of 2005, compared to the same period in 2004. That was a record level for areas reporting double-digit price increases, beating out the old mark of 69. The biggest gain came in the metropolitan area that includes Phoenix, Ariz., where home prices shot up by 48.9 percent.

Some economists have expressed concerns that once home sales start to decrease, the big price gains could turn into sharp declines in prices in some areas, bursting the speculative bubble in much the same way that the stock market bubble burst in early 2000, triggering shockwaves that helped to push the country into a recession.

However, new Federal Reserve Chairman Ben Bernanke, testified to Congress on Wednesday, said he did not expect such a severe impact from the housing slowdown.

Building activity rose in all parts of the country in January. The biggest increase was a 29.2 percent rise in the Northeast followed by gains of 23.7 percent in the Midwest, 16.9 percent in the West and 8.7 percent in the South.


<< Newer