US home construction likely fell in January, economists expect

Industrials Associated Press

The Commerce Department reports on U.S. home construction in January. The report will be released Wednesday at 8:30 a.m. Eastern.

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CONSTRUCTION DIPS: Economists expect that housing starts fell in January, declining 2 percent to a seasonally adjusted annual rate of 1.07 million, according to a survey by data firm FactSet.

In December, housing starts rose 4.4 percent from the prior month to a seasonally adjusted annual rate of 1.09 million. But the number of approved housing permits slipped in December, suggesting that construction began on fewer homes in January.

Strong job growth in recent months should help boost sales of homes and apartment construction this year. The economy has gained more than a million new paychecks in the past three months. Employers have added 3.2 million jobs over the past 12 months, a 2.3 percent increase.

The employment gains have fueled expectations that more millennials will sign leases on apartments and more families will upgrade to a newly built house.

Metro areas with the fastest job growth are also experiencing larger increases in home prices, Jed Kolko, chief economist at the real estate firm Trulia, said in a report last week.

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"A growing economy fuels housing demand," Kolko said. Among the 10 metro areas with the biggest year-over-year price increases, nine had at least 2 percent job growth, he noted

Higher housing prices generally lead to more construction.

While sales of new homes remain well below their pre-recession levels, economists say that new construction should increase this year.

Builders are projected to break ground on 1.2 million new homes and apartments this year with activity strengthening even further in 2016 to 1.49 million homes constructed and 1.61 million in 2017, according to Macroeconomic Advisers, a private forecasting firm.

The gains have yet to fully appear ahead of the spring buying season.

The National Association of Home Builders/Wells Fargo builder sentiment index drooped in February, falling to a reading of 55 from 57 in January. Much of that decrease came from less buyer traffic, as winter storms this month cut into model home visits. Still, readings above 50 indicate that more builders view sales conditions as good rather than poor.

Once the weather improves, many economists expect that sales will be aided by mortgage rates near historic lows. The 30-year fixed rate mortgage averaged 3.69 percent last week, compared to 4.28 percent a year ago, according to the mortgage firm Freddie Mac.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data compiled by the home builders.