“The drop in starts reflects a correction from the strength we saw earlier,” Sean Incremona, a senior economist at 4Cast Inc. in New York, said before the report. 4Cast was the best forecaster for home building starts over the past two years, according to data compiled by Bloomberg.
Work on multi-family homes, such as apartment buildings, plunged 24.1% to an annual rate of 277,000.
The drop in total starts reflected declines in two of four regions. Construction dropped 50% in the Midwest and 35.3% in the Northeast. It rose 16.7% in the West and 4.1% in the South.
The Federal Reserve’s efforts to keep mortgage costs low have helped bring about a turnaround in housing, the industry that was at the center of the financial crisis.
For all of last year, builders began work on 779,900 homes, a 28.1% increase from 2011 and the third straight annual gain. Even with the yearly improvement, housing starts remain short of the 2.07 million in 2005 at the peak of the boom, which was three-decade high. Sentiment in the industry leveled off this month from a more than six-year high, figures showed yesterday. The National Association of Home Builders/Wells Fargo index of builder confidence fell to 46 from the prior month’s 47 that matched the highest reading since April 2006.
Company results indicate the improvement in residential real estate will continue. PulteGroup, Lennar and D.R. Horton Inc., the top three U.S. homebuilders by market value, said orders rose in the most recently reported quarter.
“The combination of incredibly low mortgage rates, continued increases in rental rates and especially rising home prices, and very low -- and likely to stay low -- inventory levels for housing lead us to believe that 2013 will be a better year for U.S. housing than 2012,” Richard Dugas, chief executive officer of Bloomfield Hills, Michigan-based PulteGroup, said on a Jan. 31 earnings call.
Builders are now gearing up for the spring selling season, traditionally viewed as starting the weekend after the National Football League’s Super Bowl, an event held Feb. 3.
Near record-low mortgage costs have made it cheaper to buy a home for those who qualify for credit. The average fixed rate on a 30-year loan held at 3.53% in the week ended Feb. 14, down from 3.87% a year ago, figures from McLean, Virginia-based Freddie Mac showed.
Increased household formation is also encouraging builders to diversify into construction of apartments. Miami-based Lennar in January said it plans to construct $1 billion of multifamily properties, while Toll Brothers Inc., the largest U.S. luxury- home builder, said it will begin development of high-end college dormitories.
Firming prices are also helping to attract buyers who were reluctant to make purchases when property values were declining. The S&P/Case-Shiller index of house prices in 20 cities rose 5.5% in the 12 months to November, the biggest year-over-year gain since August 2006, the most recently available data showed.