Feb. 16 (Bloomberg) -- Builders in the U.S. started work last month on the fewest number of new homes since August 1997 as a glut of unsold houses and the onset of colder weather discouraged new projects.
Housing starts slumped 14.3 percent to an annual pace of 1.408 million, less than forecast and down from December's 1.643 million rate, the Commerce Department said today in Washington. Building permits declined 2.8 percent to a 1.568 million pace.
The figures show that even as sales have rebounded, residential construction will remain a drag on the economy until the inventory of unsold homes declines. Federal Reserve Chairman Ben S. Bernanke told lawmakers this week that the process may extend through much of the year.
``Housing inventories are still beyond bloated, and starts aren't going to recover in any meaningful way until those inventories come down,'' Chris Low, chief economist at FTN Financial, said before the report. ``I would be cautious about calling an end to the housing slump just yet.''
Economists surveyed by Bloomberg News had forecast starts to fall to a 1.60 million unit pace from an originally reported 1.642 million pace the prior month, according to the median of 75 estimates. Forecasts of starts ranged from 1.50 million to 1.72 million. Permits were expected to drop to 1.59 million, according to the median estimate.
Construction of single-family homes dropped 11.2 percent last month to a 1.108 million rate, also the weakest since August 1997, today's report showed. Work on multifamily homes, such as townhouses and apartment buildings, declined 24.1 percent to an annual rate of 300,000.
Construction in the West fell 28.5 percent to an annual rate of 301,000 last month, the slowest since December 1996. The decline in the West from December was the biggest since January 1979.
Starts also dropped 15.2 percent in the Midwest to a 195,000 pace, the weakest since January 1991, and decreased 11.8 percent in the South to 716,000. Beginning construction in the Northeast rose 8.9 percent.
The number of homes under construction fell 2.4 percent in January to a 1.218 million pace, today's report showed. Housing completions declined 1.2 percent to an annual rate of 1.88 million.
The number of housing units authorized, but not yet started, increased 2.9 percent to 194,400.
Home construction fell at an annual rate of 19.2 percent last quarter, the most since 1991, after contracting at an 18.7 percent pace in the previous three months, according to a government report Jan. 31. The decline subtracted 1.2 percentage points from fourth-quarter growth.
Biggest Drop Since October
Last month's decrease in housing starts, the biggest since October, followed a 5 percent increase in December that economists including Michael Moran of Daiwa Securities America Inc. may have been caused in part by builders taking advantage unusually warm weather.
The final month of last year was the warmest December since 1957, according to the National Climatic Data Center in Asheville, North Carolina.
Higher mortgage costs and surging prices the past few years put buying a home out of reach for many Americans. The 30-year fixed mortgage rate averaged 6.40 percent during the second half of last year, up from 5.87 percent for all of 2005, according to Freddie Mac, the No. 2 purchaser of home loans.
Slower sales and cancellations of existing orders have caused the number of unsold homes to pile up. The supply of homes at last year's sales rate averaged 6.4 months' worth, up from 4.4 months' worth in 2005 and 4 months in 2004.
Fourth Quarter 2007
Sales of new houses in the U.S. will slow until the fourth quarter of 2007, the National Association of Realtors forecast on Feb. 7.
Horsham, Pennsylvania-based Toll Brothers Inc., the largest U.S. luxury home builder, reported a 33 percent plunge in orders during the quarter ended Jan. 31.
Bernanke said in congressional testimony this week that ``weakness in residential investment is likely to continue to weigh on economic growth over the next few quarters.''
Still, mortgage rates this year have eased and homebuilders have offered discounts and other incentives, helping lure some buyers back into the market.
The ``pace of cancellations is starting to abate,'' Toll Brothers Chief Executive Officer Robert Toll said in a statement Feb. 8. ``However, we are still well above the company's historical average.''
Confidence among U.S. homebuilders unexpectedly rose this month to the highest since June, according to a survey yesterday from National Association of Home Builders/Wells Fargo.
The improved outlook is reflected in the performance of homebuilding stocks, which have regained some ground after plunging last year. The Standard and Poor's Supercomposite Homebuilding Index, made up of 16 homebuilder stocks, has risen more than 4 percent since early January, surpassing the gain in the broader S&P 500.
``The U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes,'' Bernanke said during congressional testimony Feb. 14.
To contact the reporter on this story: Joe Richter in Washington atLast Updated: February 16, 2007 08:30 EST