New home construction slows sharply from December's record pace, coming in below forecasts.
February 18, 2004: 8:46 AM EST
NEW YORK (CNN/Money) - The pace of new home construction slowed in the United States in January, the government said Wednesday, as the red-hot housing market cooled off from December's record pace.
The Commerce Department said housing starts fell 7.9 percent to a seasonally adjusted annual rate of 1.9 million units, after rising a revised 0.6 percent to 2.07 million units in December.
Economists, on average, had expected housing starts to dip to a 2 million unit pace, according to Briefing.com.
Building permits, a forward-looking indicator of housing demand, fell 2.8 percent to an annualized rate of 1.9 million units after rising 4.8 percent in December to a rate of 1.95 million units.
Economists, on average, had expected building permits to fall to a 1.91 million unit pace, according to Briefing.com.
U.S. stock market futures had little reaction to the report, continuing to point to a slightly positive opening on Wall Street. Treasury bond prices rose.
The housing market has been one of the strongest sectors of the economy in recent years, helped along by the lowest mortgage rates in a generation.
In turn, the housing market has helped support consumer spending, which makes up more than two-thirds of the total economy. A surge in home prices made homeowners feel wealthier, easing the sting of a three-year bear market in stocks, and a boom in mortgage refinancing cut mortgage borrowers' monthly payments and gave them some extra cash to spend.
Rates began to rise in the second half of 2003, stifling the refi boom and leading many analysts to expect the housing market to slow down in 2004. Sales of new and pre-owned homes did, in fact, slow at the end of the year.
But interest rates have stayed stubbornly low, keeping housing demand relatively high. Last week, the average rate for a 30-year mortgage fell to 5.66 percent, matching its lowest level since last July, according to mortgage financing firm Freddie Mac.
Despite the dip in rates, demand for mortgages also fell last week, the Mortgage Bankers Association said Wednesday.
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