Drop in U.S. Housing Starts
Underlines a Slowdown

Signs of a housing slowdown intensified as home construction fell sharply last month, and a deep-discount deal offered by a major home builder in one of its pricier markets suggested the industry may be feeling some anxiety.

Meanwhile, two other big home builders, D.R. Horton Inc. and Beazer Homes USA Inc., reported solid quarterly earnings growth, but analysts said Horton looks better positioned to cope with a downturn.

The Commerce Department reported yesterday that U.S. housing starts fell 8.9% in December to an annual rate of 1.933 million units from November's 2.121 million units. The drop may have been at least partly weather-related. However, applications for building permits also fell, declining 4.4% to 2.068 million units from 2.163 million in November. Building permits, which don't fluctuate with the weather, are considered a dependable indicator of future construction activity.

Last month's decline in home construction was led by a 12.3% plunge in starts for single-family homes, which fell to an annual rate of 1.577 million.

"As we have been talking about for some time, the market is slowing," said Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies. "Slowing is not the same as reversing course," he added, "It's still a pretty big number."

Indeed, even with the weakness seen in yesterday's report, 2005 was a record year for home construction. The Commerce Department said single-family home-and-apartment construction totaled 2.065 million units, a 5.6% increase from 2004. That pushed total construction to the second-highest level on record, topped only by the 2.357 million units built in 1972.

Despite the signs of a slowdown, D.R. Horton and Beazer Homes both reported a 29% increase in earnings for their fiscal first quarters ended Dec. 31. Horton's net income rose to $310.1 million, or 98 cents share, from $241 million, or 76 cents a share, a year earlier. Revenue rose 15% to $2.9 billion as the company closed on 9,891 homes, a slight increase from 9,680 homes a year earlier.

As it previously reported, Horton's orders for new homes during the quarter rose 19% to $3.2 billion, representing 11,463 homes. Orders serve as a barometer for future earnings as they reflect revenue the company will receive two or three quarters down the line when a home sale closes. Other builders, such as Denver-based M.D.C. Holdings Inc., have recently reported declining orders, but Horton, Fort Worth, Texas, bucked the trend by showing growth in all of its regions.

Atlanta's Beazer Homes indicated that it is starting to see softness in some regions. The company said its quarterly net income rose to $89.9 million, or $2 a share, from $69.7 million, or $1.57 a share, a year earlier. Revenue rose 21% to $1.1 billion. Beazer's new orders rose 9.2% to 3,872 homes during the quarter. That reflects increases in the Southeast, Central and Midwest regions, which were partly offset by lower home orders in the West and Mid-Atlantic regions.

Analysts think some builders will weather the slowdown better than others. "Horton is just better positioned in all of the markets that they're in in terms of the price points that they serve," said Alex Barron, an analyst at JMP Securities in San Francisco.

Though the building industry's confidence has trended downward for the past few months, recent declines in mortgage rates and improved consumer sentiment have moderated initial fears, according to a recent report by the National Association of Home Builders.

Some builders appear anxious, however. On the Web site 12hoursalebycentex.com, Centex Corp., a builder based in Dallas, is offering buyers who show up between 10 a.m. and 10 p.m Saturday at almost any new Centex neighborhood in northern California as much as $100,000 off the price of selected home sites.

Separately, the Labor Department said new claims for unemployment benefits dropped to 271,000 in the week ended Jan. 14, down 36,000 from the previous week and the lowest level in six years. The four-week moving average of new claims dropped 12,000 to 299,000 from the previous week's 311,000, the lowest level since October 2000.

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