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HOME GAMES: HOUSING STARTS/BUILDING PERMITS, MORTGAGES

Investors were treated on Wednesday to a housing data double-header, and none of the news was particularly cheerful.

Groundbreaking on new American homes USHST=ECI tumbled 9.8% in January to 1.366 million units at a seasonally adjusted annualized rate (SAAR).

It was a steeper-than-expected slide, landing 1.7% shy of consensus, and is likely at least partially attributable to the unusually frigid weather that plagued much of the nation last month.

"The slower pace of starts aligns well with January builder surveys indicating lower expectations for sales in the next six months," says Daniel Vielhaber, economist at Nationwide. "These expectations fell further in February as mortgage rates are now expected to stay higher for longer – likely offering little relief to the housing market for most of the year."

Building permits USBPE=ECI, on the other hand, squeaked by with a 0.1% gain to 1.483 million units SAAR, in defiance of the 1.5% decline analysts predicted.

Building permits are widely considered to be among the more leading housing indicators.

Delving below the Commerce Department's headline, single-family housing starts fell 8.4%, while volatile multiple-unit starts plunged 13.5%.

Single-family building permits were unchanged on the month, but multiple unit permits eked out a 0.2% gain.

"Homebuilders seem to have been expecting a pick up in demand but this month's sharp drop in the NAHB index measuring their expected sales over the next six months suggests that this optimism is waning," says Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. "The more than 20% decline in the S&P 1500 Homebuilders index suggests that investors are losing confidence too."

But back to mortgage rates.

The cost of financing home loans inched a tad lower last week, but not by enough to impress would be borrowers.

The average 30-year fixed contract rate USMG=ECI shed 2 basis points to 6.93%, according to the Mortgage Bankers Association (MBA).

Even so, applications to purchase homes USMGPI=ECI and refinance existing mortgages USMGR=ECI slid by 5.9% and 7.3%, respectively.

"Despite mortgage rates declining ... mortgage applications decreased to their slowest pace since the beginning of the year," writes Joel Kan, deputy chief economist at MBA. "Purchase applications were down for the week, as buyers remained on the fence, although loosening inventory may help support activity in the coming months."

The average 30-year fixed rate is now 13 basis points below where it was during the same week last year, while purchase and refi demand are up 7.8% and 39.0% over the same time period.

While building permits and applications for loans to buy homes are considered forward-looking, they still point backward.

The stock market, on the other hand, tends to show where investors expect the sector to be six months to a year down the road.

With that in mind, while the S&P 1500 Homebuilding index .SPCOMHOME and the Philadelphia SE Housing index .HGX outperformed the broader S&P 500 for much of the past year, that relationship abruptly reversed in early December.

Compared to last year, the SPCOMHOME is now down 3.1% while the HGX is up 5.9%, both well underperforming the SPX's 22.5% advance over the last 12 months.

(Stephen Culp)

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