Housing Data a Mixed Bag for Builders

Updated from 9:45 a.m. EST

New housing starts and building permits in January plunged from last year but inched up from December, as economists expected, signaling that the unraveling of the U.S. housing market continues to slow economic growth.

Housing starts totaled an annual rate of 1.012 million in the month, down 27.9% from a year earlier, but up 0.8% from December. Economists anticipated a pace of 1.015 million starts.

Residential building permits, an indicator of future demand, totaled an annual rate of 1.048 million, down 33.1% from a year earlier and down 3% from December. Economists projected a rate of 1.04 million permits.

The slight increase in housing starts came from an uptick in multifamily construction. Single-family home starts and permits declined sequentially, falling 5.2% and 4.1%, respectively, from December to January.

Homebuilder stocks were mixed after the report. HovnanianHOV fell 2% to $8.40, while Pulte HomesPHM rose 1% to $14.30.

The data carry varied implications for builders. Lower starts and permits will help reduce the record level of inventories of houses for sale. At the same time, the starts and permits also signal declining demand from homebuyers.

"We need less homes on the market, so we can get some sort of equilibrium in the marketplace, but at the same time if builders are not building homes, they are not making money," says Adam York, an economic analyst with Wachovia.

Wachovia expects housing starts to decline further from now into the first half of 2008.

One caveat is that January is not considered one of the bigger months for home sales. The current period, after the Super Bowl in early February, begins the all-important spring selling season for builders.