Home Starts Bloomed in January;
Less-Rosy Days Are Seen Ahead

Home builders broke ground at the fastest pace in more than three decades last month, as unusually warm weather trumped signs of a weakening market.

The Commerce Department said housing starts surged 14.5% last month from December to an annual rate of 2.28 million units. Housing starts were up 4% from a year earlier. Permits for new residential buildings rose 6.8% in January from December levels.

Many economists expected a rebound in housing starts after an 8.9% decline in December, but few said they expected such a strong surge. Mild weather in many parts of the country last month -- also a factor underpinning strong retail sales and employment growth in the period -- was cited widely as the main factor behind the surge. Many analysts predict a slowdown in the housing market in coming months.

"The January number is an aberration that doesn't mean anything," said Patrick Newport, an economist at Global Insight, an economic-analysis firm. "We're going to see a big drop in February and then a gradual slowing for the rest of the year."

Some economists warned of overbuilding, saying recent declines in mortgage applications and rising inventories of unsold homes point to waning demand. The upward trend in interest rates also is causing concern. Freddie Mac said yesterday that the average interest rate on the standard 30-year, fixed-rate mortgage rose to 6.28% last week from 5.62% a year ago.

Steve Gerber, vice president of production at Bogdan Builders, a luxury-condominium builder in Bethesda, Md., said his firm had received five times as many contracts in January as it did in December. Still, he says, Bogdan is having a harder time selling units now. The company is into its third month of sales for a 14-unit condo complex in the Columbia Heights neighborhood of Washington, D.C. "A year and a half ago, we had a 12-unit condo building sell out in four hours," Mr. Gerber said. "Those days are over."

Meanwhile, the Labor Department said 297,000 people filed initial claims for unemployment benefits last week, up 19,000 from the week before. The four-week moving average of claims, closely watched because it paints a less volatile picture of labor-market conditions, was 283,000, up 6,250 from the previous week.

Together with recent indicators showing strong gains in wage growth, the jobless-claims data suggest the unemployment rate might fall in the months ahead even lower than the current 4.7% rate.

Separately, the Labor Department said prices for imports and exports rose in January. Import prices increased 1.3% from December, driven by a 6.4% jump in oil prices. Export prices rose 0.7%.

Email your comments to rjeditor@dowjones.com.