Housing starts decline but permits hit four-year high

Housing starts fell in January on a sharp drop in volatile multifamily construction, but the sector showed stronger long-term promise. 

Homebuilders started work on new homes at a seasonally adjusted annual rate of 890,000 last month, a drop of 8.5 percent from December, when it hit the highest level since June 2008, the Commerce Department said on Wednesday. 

The decline was driven by a 24.1 percent drop in building of units such as apartments. 

Still, single-family building ticked up slightly by 0.8 percent while permits, which forecast future building, rose 1.8 percent to 925,000 units, the quickest pace since mid-2008.

"Today's report is quite positive in that it shows continued upward movement in single-family housing production and permitting activity for both single- and multifamily units," said David Crowe, chief economist for the National Association of Home Builders (NAHB).  

"Meanwhile, the decline in multifamily starts reflects an adjustment from an unsustainably large gain in December and is consistent with the up-and-down swings that are often associated with that sector."

The January drop isn't unexpected, considering the 23 percent gain the previous month. The government revised December figures upward to a 973,000 pace, up from 920,000. 

"Steady demand for new homes is prompting builders to put more construction crews back to work in order to replenish thin supplies of completed product," said Rick Judson, chairman of the NAHB and a homebuilder from Charlotte, N.C.

"We expect this progress to continue through the spring buying season and beyond, with credit availability and poor appraisals being the primary limiting factors."

Regionally, combined single- and multifamily housing production gained 4.1 percent in the South and 16.7 percent in the West, but it fell 35.3 percent in the Northeast and 50 percent in the Midwest in January.

Meanwhile, permitting activity rose in three out of four regions in January — a 10.1 percent gain in the Northeast, a 1.4 percent gain in the Midwest and a 1.1 percent gain in the South. The West posted a 0.5 percent decline.

Last year's final figures show that builders began construction on 780,000 homes, a 28 percent improvement from 2011, and about half the 1.5 million that economics say represents a healthy housing market. 

Overall, it is the best performance for the market in four years.