AP News

Ahead of the Bell: US home construction

WASHINGTON (AP) — The Commerce Department looks at home construction in January. The report is scheduled for release at 8:30 a.m. EST Wednesday.

WEATHER IMPACT: The forecast is that construction slowed to an annual rate of 950,000 in January, according to a survey of economists by the data firm FactSet.

RECENT PERFORMANCE: Home construction fell slightly in December to a pace of 999,000, a drop of 9.8 percent from November's 1.12 million rate, which had been the fastest in five years.

FURTHER IMPROVEMENT: For 2013, housing construction increased 18.3 percent to 923,000 homes and apartments, up 18.3 percent from 2012. It was the fourth straight annual gain and lifted housing construction to its fastest pace since 2007, when 1.36 million homes were started.

The expectation is that housing will keep improving this year, helped by further gains in employment and relatively low mortgage rates. Rates hit record lows in early 2013 but then they started rising as the Federal Reserve sent signals that it might begin to curtail its monthly bond purchases.

The Fed did reduce those purchases in December and January, trimming them by $20 billion down to $65 billion per month. Analysts expect the Fed will keep reducing the bond purchases in similar $10 billion moves at each meeting this year until eliminating the program in December.

U.S. homebuilders' confidence in the housing market declined sharply in February, a drop that was blamed on the severe weather battering much of the nation.

Storms and cold weather dampened builders' outlook for sales ahead of the spring home-selling season and could further slow the pace of home construction.

The National Association of Home Builders/Wells Fargo builder sentiment index released Tuesday slid to 46. That's down from January's reading of 56 and is the lowest level since May. Readings below 50 indicate that more builders view sales conditions as poor rather than good.

The overall index had been above 50 since June, reflecting a strengthening housing market. Some analysts suggested the February decline could be a one-month blip rather than a signal of a weaker environment. Typically, the spring season sets the pattern for residential hiring and construction in the ensuing months.

Sales of new homes jumped 16.4 percent last year to 428,000, the highest level in five years. Sales typically slow in November and December. But this winter's onslaught of snowfall and freezing temperatures has exacerbated the seasonal slowdown.

The builder survey adds to reports showing that severe weather this winter has taken a toll on the economy. Auto sales fell 2.1 percent in January and posted their first year-over-year drop in sales since August 2010. Retail sales also tumbled last month after a smaller decline in December.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the homebuilders association.

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