Despite optimism in most forecasts, it looks like 2015 is off to a faltering start for the housing industry.

January was a bad month for housing starts, completions and permits, reflecting perhaps the reason for homebuilder confidence to likewise be down for February.

Single-family authorizations in January were at a rate of 654,000; this is 3.1% below the revised December figure of 675,000.

Single-family housing starts in January were at a rate of 678,000; this is 6.7% below the revised December figure of 727,000. 

Further, mortgage applications have been spiraling downward in February, giving away most of the gains made in January.

“Coupled with a pullback in homebuilder confidence, this morning's decline in both starts and permits at the start of the year suggests a further malaise in housing activity,” says Lindsey Piegza, chief economist for Sterne Agee. “Housing has been taking small steps of improvement but demand remains limited, keeping all other elements of housing activity tempered. Without adequate income and job creation, consumers will remain sidelined, unable to afford a home purchase.

“Particularly for the youngest generations strapped with student debt, preferences are already shifting towards smaller owner units such as condos or co-ops, as well as the rental market,” she says.

However, Paul Diggle at Capital Economics was more sanguine about these early January reports.

“With mortgage credit conditions loosening, the labour market on fire and household formation strengthening, January’s decline in housing starts should soon give way to solid gains in homebuilding,” Diggle says in a client note. “Nonetheless, the latest decline was disappointing given that it was entirely driven by a 6.7% m/m fall in single-family starts. Multi-family starts increased by 7.5% m/m. The drop also occurred despite warmer-than-average temperatures and below-average snow cover in January.

“Indeed, the regional breakdown shows that starts fell furthest in the Midwest, where seven states had a top-10 warmest January on record. Clearly, homebuilders weren’t breaking ground while the sun was shining,” he says. ?

At the very least, new household formation won’t be one of the drags on housing, according to the University of Southern California Lusk Center for Real Estate.

Lusk Center director of research Gary Painter and doctoral candidate Jung Hyun Choi have found that household formation, a key driver of housing demand, has recovered after the job losses that accompanied the recession.

“The freeze in formations is over and people are again moving out and forming households. This means that real estate professionals and policy makers should not keep waiting for pent-up demand” Painter added. “So while a number of factors will continue to influence the housing recovery, household formation is no longer one of them.”

Next week the industry will get reports on existing home sales and new home sales, which could give a better idea of which direction housing is heading.