U.S. home builders took advantage of record-high temperatures in January and boosted the rate of housing construction significantly higher than expectations at the start of what is seen as a cooling-off year for the housing industry.

Single-family housing starts in January were at a seasonally adjusted annual rate of 1.81 million units, up 12.8 percent from December, according to U.S. Census Bureau and Housing and Urban Development Department data released today. Privately owned housing starts were at an annual rate of 2.28 million units, 14.5 percent over December figures.

The unforeseen rise in housing starts raises questions over whether this would lead to an oversupply of homes in cooling home sales market, but National Association of Home Builders Chief Economist David Seiders expects that a decline in February housing starts will counteract the unusually strong month.

“I’ve had some concern and I’ve been giving some reminders to builders… that the level of inventory is currently running pretty high,” Seiders said during a conference call this morning. But he said he “wouldn’t pin overbuilding on (January figures) despite the outlandish strength.”

The record-warm weather in much of the nation can explain the rise in building activity, he said. Builders already had pre-orders on homes during the month and when weather permitted the chance to get started on those projects, many builders decided to break ground.

“Hopefully this will not exacerbate the inventory situation,” Seiders said.

The level of new homes inventory was at 4.9 months at the end of December, Seiders said, compared to a 4.1-month supply a year earlier.

“If sales slow down, the months supply can move up fairly quickly and that is the concern moving forward,” he said.

Seiders anticipates a decline in housing starts in February and he still sees an overall slowdown in the market this year. “My overall assessment has been that we fundamentally topped out in the third quarter of last year,” he said.

Home sales have showed a cooling in demand in the second half of 2005, he said, and there have been reports from big home-building companies that are lowering their outlook for 2006. Seiders also mentioned reports of builders offering more incentives to home buyers as well as an increase in home order cancellations.

“I really do view the (housing) start and permit numbers for January as a temporary burst,” he said, adding that he won’t be changing his overall forecast, which calls for moderate declines in housing activity over the next year and a half.

Federal Reserve Board Chairman Ben Bernanke in his first economic report to Congress on Wednesday also pointed to a slowing housing market, though he suggested he was hopeful the highflying housing market would make a safe landing by gradually losing altitude.

“A leveling out or a modest softening of housing activity seems more likely than a sharp contraction, although uncertainty attends the outlook for home prices and construction,” Bernanke said in his prepared remarks to the House Financial Services Committee. “Prices and construction could decelerate more rapidly than currently seems likely.”

Seiders today pointed to a major decline in housing affordability measures as home prices have continued to move up aggressively in many markets. “I’ve asked builders if they are encountering price resistance (from buyers) and a very large portion have said they are seeing that,” he said.

The affordability problem is one of the key reasons Seiders believes the market has “fundamentally started to cool.”

The Census Bureau today also reported a 6.8 percent jump in building permits on privately owned housing units over December, at a seasonally adjusted annualized rate of 2.22 million units. Single-family permits were up 2.4 percent to 1.69 million units.

Privately owned housing completions were at a seasonally adjusted annualized rate of 1.97 million units, up 1.1 percent from December. And single-family housing completions were at a rate of 1.6 million units, down 4.1 percent from December.

Meanwhile, averages on long-term mortgage rates rose for the fourth consecutive week in Freddie Mac’s weekly survey. The 30-year fixed-rate mortgage averaged 6.28 percent, and the 15-year fixed-rate mortgage averaged 5.91 percent.


Send tips or a Letter to the Editor to jessica@inman.com or call (510) 658-9252, ext. 133.

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