Privately owned housing starts registered at a seasonally adjusted annual rate of 2.28 million, a 14.5 percent increase above the revised December estimate, according to the U.S. Census Bureau's report on new residential construction in January. The rate is 4 percent above the January 2005 rate of 2.2 million and a 33-year high.

Single-family housing starts in January were reported at a rate of 1.8 million, 12.8 percent above the December figure. The rate for buildings with five units or more was 427,000.

Though this sounds good, distributors will find that, as experts predict and the year progresses, these housing numbers will fall. However, sales that decrease because of this decline may be boosted by nonresidential building activity and heavy or engineering work.

"Housing starts soared to [a] near 2.3 million annual pace during the warm weather in January, but are expected to average a little under 2.0 for the full year," said Jim Haughey, Ph.D., director of research and analytics for Reed Construction Data. "The transition to a smaller market always has a risk that starts could fall sharply for a brief period to work off excess inventory.

"Distributors should expect business generated by homebuilding activity to begin ebbing slowly by the end of the winter, but it will remain as strong as last year until very late in 2006," Haughey continued. "Distributor sales lost to a weakening housing market will be nearly completely offset by the sales generated by the increased activity of nonresidential builders and heavy or engineering contractors. The value of nonresidential building and heavy engineering project starts were 10 percent higher in January and February than in the same two months last year, according to Reed Construction Data."

Seasonally adjusted, and regionally, starts across the country rose. In the Northeast, starts increased by 29.2 percent from December, and 32.3 percent from last January. The Midwest boasted starts that rose by 23.7 percent from December, and 11.7 percent from the previous January. The South reported an 8.7 percent increase in starts, with only a 3.4 percent rise from January 2005, while the West's starts rose by 16.9 percent from December. The West though, is the only region to have a drop from the previous January's starts: decreasing by 7.8 percent.

In a statement reacting to the Census Bureau report, National Assn. of Home Builders chief economist David Seiders, said, "The January surge in housing starts was mainly weather related. Market fundamentals suggest that this pace of activity will be hard to sustain, and NAHB's survey of single-family builders points toward some cooling down in coming months, largely because of eroding affordability conditions."

Haughey added that the housing market is now clearly slowing.

"Housing starts are expected to decline about 5 percent in 2006, and 5 percent more in 2007," he said. "This still leaves starts near average in 2007, from a long-term perspective. New home sales have pulled back from their record pace late last year, builders report a rise in cancelled sales, and inventories of unsold homes have risen enough to make homebuilders delay some new developments, and Wall Street become less bullish about homebuilder profits."

The housing market has plunged 20 percent or more several times at the end of recent housing booms, Haughey added, noting that that is not expected in 2006–07.

"The earlier plunges were set off by either a sharp rise in mortgage rates, a sharp slowing in economic growth—and employment—or both," he said. "This time, mortgage rates will rise only about 50 base points more, and economic growth, while slowing, will dip only slightly under the average growth rate by next year."

The Census Bureau report maps out housing in each phase, from authorization to completion. Housing units authorized, but not started, fell in January from December, with the report showing a 3.8 percent drop nationally. Every region showed a percentage drop, except the Northeast, which boasted a 2.1 percent increase. Compared to January of last year though, the national average rose by 7.9 percent.

For housing units under construction, the national average increased by 1.2 percent from December, and 8.7 percent from last January. Regionally, they increased or held steady also, with the Northeast and South showing the largest increases, 1.2 percent and 2.1 percent, respectively. The West only rose by 0.5 percent and the Midwest held steady.

For housing units completed, the national average rose by 1.1 percent from December, and 4.7 percent from last January, but regionally, the percentage changes varied dramatically. In the Midwest, housing completions rose by 6.4 percent from December; the South rose by 3.1 percent; the West dropped by 1.6 percent; and the Northeast dropped by 11.9 percent.

In testimony given to the U.S. Congress on housing starts, Federal Reserve Board Chairman, Ben. S. Bernanke said that several indicators point to the slowing of the housing market, and that it is consistent with the solid growth of the country's overall economic activity.

"However," he continued, "given the substantial gains in housing prices and the high levels of home construction activity over the past several years, prices and construction could decelerate more rapidly than currently seems likely."

Bernanke also mentioned real estate as a key development in 2005, and looked at the implications of that, saying that the financial market conditions are consistent with moderation in housing activity, but that low mortgage rates, expanding payrolls and incomes, and the need to rebuild after the hurricanes will support the housing market.

"At this point, a leveling out or a modest softening of housing activity seems more likely than a sharp contraction, although significant uncertainty attends the outlook for home prices and construction," added Bernanke.

He concluded by saying that the Federal Reserve will watch the sector closely.