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US housing starts down in December

January 20, 2010 | "Barron’s Econoday"

Starts and permits are showing divergent movement in the latest housing starts report with starts down and permits pointing to growth. Housing starts in December fell back 4.0 percent after rebounding 10.7 percent in November. December's annualized pace of 0.557 million units fell short of the consensus projection for 0.579 million units and was up 0.2 percent on a year-ago basis. The December dip was led by a 6.9 percent drop in single-family starts, following a 4.0 percent rise in November. Meanwhile the multifamily component advanced 12.2 percent after a 69.8 percent surge the month before.

By region, the December decline in starts was led by 19.0 percent drop in the Northeast with decreases also seen in the Midwest, down 18.5 percent, and West, down 0.9 percent. Starts in the South rose 3.3 percent.

Despite weakness in starts in the latest month, homebuilders are a somewhat optimistic based on permits. Housing permits continued last month's rebound rising 10.9 percent in December after a 6.9 percent comeback the month before. The December pace of 0.653 million units annualized was up 15.8 percent on a year-ago basis. Both single-family and multifamily permits were up monthly in December.

Despite weakness in starts in the latest month, homebuilders are a little optimistic based on permits. Housing permits continued last month's rebound rising 10.9 percent in December after a 6.9 percent comeback the month before. The December pace of 0.653 million units annualized was up 15.8 percent on a year-ago basis. Both single-family and multifamily permits were up monthly in December.

Today's report is mixed and basically points to the volatility of starts during winter months but also to moderate improvement in coming months. Housing is still in slow recovery. On the news, there was little reaction in the markets. Of course, markets have other news to digest-the loss of the supermajority by Democrats in the U.S. Senate in yesterday's loss of a Massachusetts' senate seat and also the impact of Bank of America's losses announced yesterday.

Market Consensus Before Announcement
Housing starts in November rebounded 8.9 percent, following a revised 10.1 percent plummet in October. The comeback in November to a pace of 0.574 million units annualized was led by a 67.3 percent rebound in multifamily starts, following a sharp 29.5 percent plunge in October. Meanwhile the single-family component edged up a merger 2.1 percent after a 7.1 percent fall the month before. For December, analysts are hoping the extension of tax credits to potential home buyers will boost starts. But homebuilders may still be worried that supply is still a little high and may not boost the pace of new construction out of fear of getting stuck with unsold homes and payments on construction loans. Focus should be on the less volatile single-family component.

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