Warm Winter = Hot Construction

Posted by: Peter Coy on February 16, 2006

Housing starts leaped through the roof in January. (Statistics below.) Does this mean construction is going to be strong after all in 2006, and all that talk about softening was bunk?

It’s possible. But before jumping to conclusions, consider this. The strength in starts has one obvious explanation: The warmest January in the Lower 48 states since record-keeping began in 1895. (Details here.)

December was wet, so some construction that would have started then was postponed to January. And January was so warm that construction probably began on lots of housing that ordinarily would have been started in February or March. This means that there's likely to be a big seasonally adjusted dropoff in February and March.

There actually was one stat in the government report that shows underlying strength in housing: Permits for housing construction jumped 6.8% to a seasonally adjusted rate of 2.22 million. Obviously permits aren't as influenced by weather as starts are.

If the weather returns to normal in February and March, yet starts remain very strong, that would be a strong indication that 2006 will be a boom year for construction after all. So far, though, it's too soon to say that.

Details: The Census Bureau and HUD said today that construction began on homes at a seasonally adjusted annual pace of 2.28 million, which was up 14.5% from December and the fastest pace in 33 years. Here's a link to the press release.



BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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