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Housing starts slide for 3rd straight month; price pressure dormant

U.S. housing starts fell for a third straight month in February, but a rebound in building permits offered some hope for the housing market as it struggles to emerge from a soft patch.

The Commerce Department said on Tuesday groundbreaking slipped 0.2 percent to a seasonally adjusted annual rate of 907,000 units. That followed January's revised 11.2 percent decline and suggested underlying weakness in housing activity apart from the drag of cold weather. January starts were previously reported to have tumbled 16 percent.

Economists polled by Reuters had expected starts to rise to a 910,000-unit rate last month.

Groundbreaking plunged 37.5 percent in the Northeast last month, indicating unusually cold temperatures continued to dampen housing activity. That was the biggest drop in more than two years and pushed starts in the Northeast to their lowest level since November 2012.

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Starts also fell 5.5 percent in the West, which was unaffected by severe weather. The weather explanation for the weak housing data is challenged by a 7.3 percent rise in starts in the South and a 34.5 percent jump in the Midwest.

A worker uses a saw on a roof while building a new home at the Toll Brothers Inc. Baker Ranch community development in Lake Forest, California, Feb. 11, 2014.
Patrick T. Fallon | Bloomberg | Getty Images
A worker uses a saw on a roof while building a new home at the Toll Brothers Inc. Baker Ranch community development in Lake Forest, California, Feb. 11, 2014.

Price pressures muted

Housing started losing momentum last summer, with sales falling after a run-up in mortgage rates.

While mortgage rates have dropped a bit and the weather is starting to warm up, housing will probably take a while to regain strength as high prices and a shortage of homes on the market keep out potential buyers.

A report on Monday showed homebuilders were a bit optimistic in March but downbeat about sales over the next six months. Builders were also worried about shortages of lots and skilled labor, and rising prices for materials.

Groundbreaking for single-family homes, the largest segment of the market, rose 0.3 percent to a 583,000-unit pace last month. Starts for the volatile multi-family homes segment fell 1.2 percent to a 324,000-unit rate.

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Permits to build homes increased 7.7 percent in February to a 1.02 million-unit pace. Permits for single-family homes fell 1.8 percent. Multifamily sector permits surged 24.3 percent.

A separate report showed U.S. consumer prices rose marginally in February, but the lack of inflation pressures will probably not dissuade the Federal Reserve from dialing back its monetary stimulus.

The Labor Department said its Consumer Price Index nudged up 0.1 percent as a decline in gasoline prices offset an increase in the cost of food. The CPI had ticked up 0.1 percent in January and last month's gain was in line with economists' expectations.

In the 12 months through February, consumer prices increased 1.1 percent, slowing from a 1.6 percent rise in January. The February increase was the smallest rise since October last year.

Stripping out the volatile energy and food components, the so-called core CPI also rose 0.1 percent for a third straight month. In the 12 months through February, core CPI rose 1.6 percent after rising by the same margin in January.

Consumer inflation is running below the Fed's 2 percent target, which suggests interest rates will probably remain near record low levels even as the U.S. central bank cuts back on the amount of money it is injecting into the economy each month.

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With job growth accelerating and industrial production and consumer spending strengthening, economists expect the Fed to announce another $10 billion reduction to its monthly bond purchases when policymakers end a two-day meeting on Wednesday.

Last month, food prices rose 0.4 percent, the largest increase since September 2011. That accounted for more than half of the increase in the CPI last month.

There were big increases in the prices of meat, fish, poultry, eggs, vegetables and fruits.

Gasoline prices declined for a second month, helping to offset sharp gains in the price of heating oil and natural gas.

Within the core CPI, a 0.2 percent rise in the cost of shelter was the major contributor for the rise in the index. There were also increases in medical care, recreation and new vehicle prices. Prices for tobacco, used cars and trucks, apparel and household furnishings and operations fell.

By Reuters

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