US housing starts show surprise surge

US housing starts show surprise surge
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: March 17 2009 14:38 | Last updated: March 17 2009 15:57
http://www.ft.com/cms/s/0/b50c2ea2-12ee-11de-94bc-0000779fd2ac.html


US residential building showed renewed signs of life last month, as falling construction costs lured builders to break ground, offering a glimmer of hope that the real estate slump could be near a bottom.

Housing starts grew for the first time in eight months, rising by 22.2 per cent from January to an adjusted annual rate of construction of 583,000 in February, commerce department figures showed on Tuesday. The results beat economists’ expectations of 450,000 new starts.

The figure marked a sharp rebound from January’s revised 477,000, which was the lowest since records began in 1959, and was the sharpest monthly surge since January 1990. Housing starts remained down on the year, off by 47.3 per cent.

The monthly spike was driven by the more volatile multi-family home sector, which saw housing starts climb by 79.7 per cent last month as builders broke ground on condominiums and townhouses. Single-family starts ticked up by 1.1 per cent in the month. Builders benefited from mild weather in February after a harsh January.

“The level of housing construction is becoming so low in absolute terms that starts will bottom out in the months ahead,” said John Ryding and Conrad DeQuadros, economists at RDQ Economics, in a note to clients.

During the peak of the home construction boom monthly housing starts peaked at 2.27m in January 2006

The results could lift the spirits of homebuilders, who have been feeling gloomy in recent months. On Monday that National Association of Homebuilders’ index of homebuilder sentiment remained near is historical low. It remained unchanged at 9 and has been stuck in single-digits for five months in a row. Any number under fifty indicates a negative view.

Declining home prices and rising rates of foreclosures have brought home resales to record lows in recent months, making the rise in new construction more surprising. In February the number of default notices, auction sales and bank repossessions jumped by 30 per cent compared with the same month last year, according to figures from RealtyTrac, and home prices have fallen by 27 per cent since their 2006 peak.

The latest official figures showed that residential construction spending fell by 3.3 per cent in January from the prior month and was off by 9.1 per cent year-on-year.

But new building rose the most in the northeast and midwest, where it increased in February by 88.6 per cent and 58.5 per cent, respectively, from the prior month. Construction also picked up in the south, rising by 30.2 per cent, but continued its free-fall in the west, dropping by 24.6 per cent.

Permits issued to build homes, which signal future construction trends, also grew in February. Building permits were up by 3 per cent to 547,000 from January, but were off by 44.2 per cent on the year.

Economists warned not to get too carried away with the surprising results, as the fundamentals of the housing market remain fragile and hopes of a bottom could be “wishful thinking”.

“Already bloated inventory levels and a persistent weakness in demand suggest that there is further to run on the downside for residential construction,” said Richard Moody, economist at Mission Residential.

Separately, government data showed on Tuesday that US wholesale prices rose in February for the second consecutive month, easing fears of a pending deflation trap.

The producer price index for finished goods increased by 0.1 per cent last month, trailing economists’ forecasts. Compared with February 2008, wholesale prices were down by 1.3 per cent.

The overall growth was driven by increasing petrol prices, which rose by 8.7 per cent in February after climbing by 15 per cent the previous month. The impact of rising petrol prices was blunted by falling food prices, which declined by 2 per cent in February. Excluding food and energy, core producer prices rose by 0.2 per cent last month.

“While food prices have started to fall sharply, deflationary pressures have yet to spread beyond the energy and food sectors,” said Paul Dales, US economist at Capital Economics.

Leading the rise in core prices were increases in the price of tobacco, women’s clothing and light trucks.