Housing construction drops 5.9 pct in February

Economists characterized the February dip as weather-related although they said any housing rebound this year is likely to be modest at best given a variety of headwinds from record home foreclosures to high unemployment.

"It’s tough when you have massive rain and snow storms over a large part of the nation to get much construction activity,” said Joel Naroff, chief economist at Naroff Economic Advisors. "I am expecting housing to be a modest addition to economic growth for the rest of the year.”

The February weakness reflected a modest 0.6 percent drop in single-family construction, which declined to 499,000 units. The more volatile multi-family sector plunged 30.3 percent to an annual rate of 76,000 units after having surged 18.5 percent in January.

Activity dropped by 9.6 percent in the Northeast and 15.5 percent in the South, two regions hit by snowstorms in February. Building rose by 10.6 percent in the Midwest and 7.9 percent in the West.

Building permits, considered a good barometer of future activity, fell 1.6 percent to an annual rate of 612,000 units after having fallen a larger 4.7 percent in January.

Paul Dales, an economist at Capital Economics, said the February weakness stemmed from severe winter weather which prevented builders from breaking ground on new projects. But he said the housing outlook remains bleak because of a huge glut of unsold homes, reflecting the weakness in sales and the continued crisis with home foreclosures.

He said that in addition to 3.8 million homes for sale currently, foreclosures could dump another 5 million to 6 million homes on the market.

"Some of this excess may be reduced by a surge in sales ahead of the end of the tax credit, but the bulk is going to take a very long time to work off,” Dales said in a research note.

To qualify for a government tax credit, buyers must sign the purchase contract by the end of April.

Economists said that any spurt in sales will likely be temporary and the rebound in housing this year will be slow.

"New homes continue to face stiff competition from distressed properties coming on the market at bargain prices,” said Nigel Gault, chief economist at IHS Global Insight.

Housing set records in sales and construction during the boom years but more recently has undergone a painful bust, a downturn which helped push the overall economy into the worst recession since the 1930s.

The National Association of Home Builders reported Monday that its survey of builder sentiment dropped by two points to 15 in March, underscoring the gloom in the housing market.

Builders said that harsh winter weather and the competition from deeply discounted foreclosures were dampening sales prospects. They said they were seeing fewer prospective buyers and were feeling less optimistic about the likelihood of sales over the next six months, according to the latest survey.

Sales of new homes plunged 11 percent to a record low in January, the third consecutive monthly decline. Sales of previously occupied homes were down 7 percent, the sharpest drop since last June.