Is the Housing Recovery Already Crumbling?

Screen Shot 2014-02-19 at 10.14.19 AM

If housing indicators continue to worsen, the Federal Reserve may have to tie monetary policy to snowfall accumulation. Amid frigid temperatures and a sluggish real estate market, housing starts in the United States posted their biggest monthly drop in almost three years.

According to the U.S. Department of Commerce, builders broke ground on houses at a seasonally adjusted annual rate of 880,000 units in January, down 16 percent from the revised December estimate of 1.05 million units. That was the biggest percentage decline since February 2011. Furthermore, housing starts were 2 percent below the January 2013 rate of 898,000 units.

The results were worse than expected, which has been a common theme over the past year. On average, economists expected housing starts at around an 850,000-unit pace. It was the biggest miss of expectations in seven months, as housing starts are at their lowest level since September. In fact, single-family housing starts, the largest segment of the market, plunged 15.9 percent in January.

New building permits — an indication of future demand — dropped 5.4 percent from December to a seasonally adjusted annual rate of 937,000 units, the biggest drop since June. Building permits for single-family homes fell 1.3 percent, while multi-family permits plunged 12.1 percent.

The cold weather has received much of the blame for poor economic reports this year, but other factors, such as housing affordability, are also responsible. Building permits in the frozen Northeast fell 10.3 percent, which is considerably better than the West region, where permits plunged 26 percent against the backdrop of higher-than-normal temperatures.

Construction began on 926,700 homes in 2013, a significant increase from 780,000 units in the prior year, but still below the historic average of 1.5 million new homes per year since 1959. Housing starts peaked at 2.27 million units in early 2006, while the pace of home construction reached its low point in 2009 at below 500,000 units.

 More From Wall St. Cheat Sheet:

Follow Eric on Twitter @Mr_Eric_WSCS

More from The Cheat Sheet