Housing starts are near three-year highs, but that is in comparison to extremely weak numbers for the past few years. Builders began just 430,900 single-family homes last year, the fewest on records dating back a half-century.

Moreover, home prices are still dropping. Yet, signs of a bottom in construction, not prices, may be at hand.

Yahoo! Finance reports US housing starts rise modestly to start new year

The Commerce Department said Thursday that builders broke ground on a seasonally adjusted annual rate of 699,000 homes in January. That’s up 1.5 percent from December and nearly matches November’s three-year high for starts.

Construction began work on 508,000 single-family homes last month. That’s a 1 percent drop from December and the first decline in four months. A big rise in volatile apartment construction helped offset the decline in single-family homes.

Single-family home construction rose in each of the final three months of last year, bringing the pace of those starts to the highest level since April 2010. The modest but steady gains helped boost confidence among builders after the worst year for single-family home construction on record.

Yet for all their optimism, builders began just 430,900 single-family homes last year. It was the fewest on records dating back a half-century. And home prices are still falling.

Another reason sales have fallen is that previously occupied homes have become a better deal than new homes. The median price of a new home is about 30 percent higher than the median price for a re-sale. That’s nearly twice the markup typical in a healthy housing market.

Perspective on Sentiment

Ian Shepherdson, chief U.S. economist at High Frequency Economics said “The new home sales numbers have not yet responded but builders seem confident that if they build, buyers will come.

I suggest, if builders were confident they would be building, not yapping about confidence.

Perspective on Starts

Calculated Risk has a pair of charts that will add a bit of perspective on the rise in starts. This is one of the charts.

click on chart for sharper image

Tentative Signs of a Bottom in Construction

The charts do suggest bottoming action in construction. If so, housing will add to, rather than subtract from GDP.

However, these are very depressed levels, size of houses has dropped, and overhead supply of REOs and foreclosures will put a damper on prices for years to come.

Mike “Mish” Shedlock
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