The number of housing units on which builders began work plunged 13.1 percent in November from the previous month, the biggest monthly drop in nearly 11 years, according to the Commerce Department.
The drop was steeper than predicted, but industry economists said the report did not signal a fundamental weakness in the housing market. The report does suggest that the hot industry is cooling, however, and will contribute less to the U.S. economy going forward, they said.
Analysts expect construction of new homes, such as these in Northampton, Mass., to slow down a bit in 2005.
(Steven E. Frischling -- Bloomberg News)
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"I'm sure we'll get a bounce-back in December," said David Seiders, chief economist at the National Association of Home Builders. "We don't view this as a troublesome sign."
Housing starts plummeted in November to 1.771 million residential units at an annual rate, from 2.039 million in October, the Commerce Department said. It marked the biggest decline since January 1994 and pulled starts down to their lowest level since May 2003. Construction declined in all four U.S. regions. Starts were down for both single-family and multi-family projects.
"Housing is leveling off," said Michael Carliner, another economist at the home builders' group. "It's not going to be able to drive the economy like it has."
At the same time that starts dropped so precipitously, though, building permits, a sign of future building activity, declined just 1.5 percent, to 1.988 million.
"When you see this big of a gap between permits and starts, it almost always involves a weather problem," Seiders said. "The level of permits is still very, very good."
Seiders said that builders were carrying more unsold houses in their inventories now than at any time since the beginning of the 1980s. But, he said, the pace of sales continued to be strong. He said the drop in construction in November could be the result of "builder caution about starting new units when they've got a sizable inventory on their hands already."
The home builders' association predicts housing starts will decline in 2005. Economists there forecast a dip of 3 to 5 percent in starts for the year, compared with 2004, which is expected to be a record year for new home starts, new home sales and existing home sales.
Builders in the Washington area, however, remain bullish about business prospects for the coming year.
"The Washington, D.C., market is spectacular, one of the best in the country," said Robert Toll, chairman and chief executive of luxury builder Toll Brothers Inc.
Cory DeSpain, Toll Brothers' division vice president for Maryland and Virginia, said the demand for new homes in the region is much stronger than the company's production capacity. DeSpain said that as a result, prices of his firm's houses went up more than 20 percent in 2004 in the Washington area and are expected to increase by a similar amount in 2005.
