Home Starts Drop in January; Fed Likely to Continue Tapering

Privately owned U.S. housing starts in January dropped 16 percent compared to the revised December estimate. The Fed’s tapering of its bond-buying program will probably continue.

The Census Bureau said on Wednesday that privately owned U.S. housing starts in January came in at an annualized rate of 880,000 units, a drop of 16 percent below the revised December estimate of 1.048 million units. The January 2014 rate is also 2 percent below the January 2013 rate.

Some economists cited the lousy weather in January as one factor in the slowdown, but others posited that the impact was relatively small. Other reasons for the drop in starts might have been the modest but real run-up of interest rates in recent months, as well as increases in the prices of new homes. Some observers muttered about the end of the housing recovery, while others called it a mere bump in the road.

Permitting, a more forward-looking indicator for the residential market, also dropped in January. According to the bureau, privately owned housing units authorized by building permits were at an annualized rate of 937,000 units, or 5.4 percent below December. Year over year, permitting was up 2.4 percent in January 2014.

Fed Likely to Continue Tapering 

The Federal Open Market Committee released the notes of its Jan. 28-29 meeting on Wednesday, the last one in which former Chairman Ben Bernanke participated. The main takeaway from the meeting: the Fed’s tapering of its bond-buying program will probably continue. But it will come at the slow pace previously implemented.

“A couple of participants observed that continued low readings on inflation and considerable slack in the labor market raised questions about the desirability of reducing the pace of purchases; these participants judged, however, that a pause in the reduction of purchases was not justified at this stage, especially in light of the strength of the economy in the second half of 2013,” the FOMC noted. “Several participants argued that, in the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace of purchases by a total of $10 billion at each FOMC meeting.”

The federal funds rate isn’t likely to rise above its position near zero, either. A few members of the committee seemed to suggest that the central bank should think about raising the rate, and a few more think a change in the forward guidance about the rate would be a good idea. For now, however, there will be no change.

Wall Street had a down day on Thursday, especially after the FOMC minutes were released, with the Dow Jones Industrial Average losing 89.84 points, or 0.56 percent. The S&P 500 lost 0.65 percent and the Nasdaq was down 0.82 percent.