The US homebuilding sector in 2007 experienced the sharpest decline in 27 years. It is feared that it will continue to decline in 2008 amid uncertainty of on a possible recession. In January, housing starts moved up 0.8% in January to an annualized 1.012 million units. December's level was slightly downwardly revised to 1.004 million units, the Commerce Department reported.

Permits to begin new construction fell for the eighth month in a row to an adjusted annual pace of 1.048 million privately owned units, in line with expectations of 1.040 million.

All of the weakness was concentrated in the historically more stable singles component which dropped 5.2% to an annualized 743,000 units. In contrast, the multiples component rose 22.3% to 269,000. Permits dropped 3% to an annualized 1.048 million units. They were down 7.1% in December. Regionally, weakness was concentrated in the south (down 2.9%) and the west (down 6.2%).

Although starts edged upwards slightly in January, they were still off 12.2% relative to their fourth-quarter average. Furthermore, the drop in building permits in January suggests that starts will decline further this month.

Fed chairman Ben Bernanke told a congressional hearing last week that the forecast would be lower than the forecast released late last year of an average growth range of 1.8 to 2.5 percent for 2008.

Given that homes inventories in the sector remains high, it is expected that downward pressure on residential construction will continue.