Will Housing Rebound After Woeful Winter?
Business + Economy

Will Housing Rebound After Woeful Winter?

REUTERS/Max Whittaker

Two new reports on the housing market this week cast doubt on the general consensus that poor weather has only postponed what is likely to be a year of recovery in the home construction business.

The Commerce Department on Wednesday reported that builders had begun building new homes in January at a seasonally adjusted annualized rate of 880,000, down a surprising 16 percent from last month. The data came just one day after the National Association of Home Builders found a record decline in confidence in the market among its membership.

Related: The Booming Housing Market for Boomer Retirees

Many economists attributed the poor showing in January to extreme winter storm, and most analysts remain cautiously optimistic about a rebound in the housing market.

“January starts suffered due to adverse weather conditions,” wrote Patrick Newport and Stephanie Karol, U.S. economists with IHS Global Insights. “Last month was the fifteenth coldest in 120 years, in terms of heating degree days. In the Midwest, the average temperature fell below zero. Most of the drop in starts, both single- and multifamily, occurred in the Midwest.”

Newport and Karol said that builders’ confidence would be restored once a “pipeline backup” in developed lots and skilled labor eases. “The latest Fed Senior Loan Officer Survey showed that standards continue to ease for construction and land development loans, while demand for this type of financing is getting stronger,” they wrote. “We anticipate pipeline pressures will ease over the next two quarters, allowing total housing starts to surpass the one million mark in 2014.”

However, some of the findings in the Commerce Department report left other analysts worried about the underlying strength of the market. 

Related: Home Prices May Not Get Back to Peaks Until 2021

“The harsher-than-usual winter weather is a natural culprit, although whether that explains only some, all of, or more than all of the weakening is unclear,” wrote Jim O’Sullivan, chief U.S. economist with High Frequency Economics.

“While weather may have contributed to some of the weakness in the January report, some of the regional detail suggests that we should not attribute all of the weakness in the January data to the unusually severe weather,” wrote Daniel Silver, an analyst with JPMorgan Chase. “Starts declined in the West where temperatures were warmer than normal in January and starts increased in the Northeast where temperatures were unseasonably cold.”

Unfortunately, next month’s data is unlikely to clear things up conclusively, as winter storm Pax dumped snow and ice on the South and the entire eastern seaboard, likely depressing construction activity as it went.

Top Reads from The Fiscal Times