Housing Starts Up 4.5% In December, But At 15-Year Low In 2006

The pace of U.S. home construction climbed 4.5% in December, a second-straight monthly increase that ran contrary to analyst expectations, but for all of 2006 the rate of new home building posted the biggest decline in 15 years, a government report showed.

The Commerce Department said housing starts closed out the year at an annual pace of 1.642 million units in December compared to 1.572 million units in November.

Economists had forecast December housing starts to fall to 1.560 million units from November's originally reported pace of 1.588 million units.

According to CNBC's Steve Liesman, the increase was the third-best showing for December new home construction since 1959.

Many analysts attributed the advance to the warmer-than-usual weather during the month.

"The uptick in housing starts is more weather-related than a reflection of demand," said Marc Pado, U.S. market strategist at Cantor Fitzgerald. "Through the month of December, the temperatures have been conducive to continuing projects."

"But a number like this has got to set the (market) bears back a little bit, if (housing) continues to trend in this direction," Pado added. "The housing market seems to be stabilizing; if that
holds to the summer, we could see some decent improvement in the housing market."

Analysts have been looking for signs of a stabilizing housing market. On Wednesday, the National Association of Homebuilders' index showed rising confidence among home builders.

Significantly, building permits, which offer a clue to future construction plans, rose 5.5% to a 1.596 million unit pace.

Economists were expecting building permits would register a 1.500 million unit pace, close to the 1.513 million unit figure reported for November.

For all of 2006 housing starts totaled about 1.8 million, that was down 12.9% from the 2005 total, the biggest decline since 1991.

Permit applications for the year were down 14.9%, the biggest decline since 1990.

"It is hard to say, but when you look at the pattern on housing starts, and when you look at the weather, you would have to say that it is probably stabilizing at this point," said Kurt Karl, head of Economic Research and Consulting at Swiss RE. "You just don't see it falling off a cliff, and I don't think it is all about the weather."

"I would say we are pretty much out of the woods, but this quarter we will see declines year-on-year and after that we might be out of the woods," Karl said.