New home construction cools off further in February, defying expectations of a slight gain
March 16, 2004: 8:48 AM EST
NEW YORK (CNN/Money) - The pace of new home construction slowed in the United States in February, the government said Tuesday, defying Wall Street forecasts of a slight gain.
The Commerce Department said housing starts fell 4 percent to a seasonally adjusted annual rate of 1.86 million units, after falling a revised 6.3 percent in January. Economists, on average, had expected housing starts to rise to a 1.94-million-unit pace, according to Briefing.com.
February's pace of housing starts was the slowest since last August. The pace of starts had surged in December to the fastest since February 1984.
The report had little impact on Wall Street, where stock market futures continued to trade higher, pointing to a positive opening, and Treasury bond prices fell.
January's decline was likely influenced by bad weather, but February might not have had such an excuse. Starts slowed sharply in the South and the West and rebounded in the Northeast and Midwest.
Building permits, a forward-looking indicator of housing demand, fell by 1.5 percent to an annual rate of 1.9 million units after falling a revised 1.1 percent in January. The reading was about in line with economists' forecasts, on average.
The housing market has been one of the strongest sectors of the economy in recent years, fueled by the lowest mortgage rates in a generation, helping to make consumers wealthier and keep them spending.
Rates began to rise in the second half of 2003, leading many analysts to expect housing to cool off in 2004. Sales of new and preowned homes did, in fact, slow at the end of the year.
However, interest rates have stayed stubbornly low, keeping housing demand relatively high, and a jump in rates isn't likely until the Federal Reserve starts pushing up its key short-term interest rate.
But the Fed, the nation's central bank, is probably on hold until employers start hiring in significant numbers. Fed policy makers meet Tuesday and are widely expected to keep rates on hold.
Housing has been so strong, in fact, that some observers have worried there is a housing-market bubble, akin to the stock market bubble of the late 1990s. The fear is that home prices are artificially high and in danger of tumbling, which would hurt homeowners.
But most economists dismiss this worry. Even as they acknowledge that some local markets may be in overinflated, the analysts also say housing supply seems appropriate -- unlike the late 1980s and early 1990s, when builders slapped together houses in a speculative frenzy. The result was a glut of inventory and tumbling prices.
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