(CEP News) - U.S. housing starts are once again slated to set a fresh record low in February following a surprisingly weak result in January, as consumers instead opt to purchase existing homes that are under foreclosure and at bargain prices.

As inventory levels continue their upward trajectory, economists say the likelihood of a turnaround in the new home sales market any time soon is slim.

“The supply of existing homes is increasing due to the rising number of foreclosures and the falling price of real estate,” economists at BBVA wrote in a research note. “As a result, consumers are buying existing homes rather than new ones, which is discouraging new residential construction.”

A Bloomberg survey of economists is calling for a decline to 450k starts in the month, down from 466k in January. The range of estimates runs from a low of 400k to a high of 500k.

In January, housing starts surprised to the downside, falling 16.8% to the lowest level since 1959. Economists had expected a decline to 529k. Single-family homes - the most important component in the report, accounting for four-fifths of housing starts - fell 12.2% to 347k, compared to the previous month’s 395k. Single-family units have been falling for 20 of the past 21 months.

“While starts may be nearing a bottom, the number of homes under construction will still probably drop a considerable amount, thereby reducing economic output and employment,” economists from JPMorgan said in a client note.

“Consider that there were 787,000 units under construction in January. Using data on the length of time it takes to complete a home, and assuming that starts remain near their current level, we estimate that homes under construction could be cut almost in half by the end of the year,” they added.

Economists at Nomura note that the steep declines in housing starts in December and January suggest home builders have become increasingly discouraged about sales prospects.

“Although lower mortgage rates and the decline in house prices have the potential to entice buyers back to the market, a fully-fledged recovery still looks to be several months off,” they wrote.

Permits are expected to continue to decline as well, to 500k from a previous reading of 531k.

The housing starts data will be released by the U.S. Department of Commerce at 8:30 a.m. EDT on Wednesday.

By Stephen Huebl, shuebl@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca

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Posted in Categories: Economy, Housing, Releases, USA.

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