Although housing starts were down slightly as widely expected, the level was much higher versus previous projections given the steep upward revision to the January figure, according to RBS Greenwich Capital. January's starts were boosted by roughly 60,000 units compared to initially estimated. "Do not be fooled by the volatility, which is being generated primarily by the erratic multi-family segment," wrote RBS Greenwich analysts. They added that single-family housing starts dropped by 6.7% in February and January's upwardly-revised level for single-family starts was still down 3.1% versus December. Indeed, single-family starts have dropped for 11 straight months and are at the lowest level in 17 years. Other market players will also point to the dip in building permits as a sign of further upcoming weakness, but the firm's statistical analysis implies that permits are more of a coincident, but less sensitive to weather, indicator to starts than a predictor. This is why analysts said that, although the overall housing starts level is over the December reading, it is not at all clear that the homebuilding downtrend has been arrested. Analysts look for residential construction activity to continue to dip for all of this year, although analysts said starts might be comparatively near bottom. Analysts said they would not be suprised if December's reading of exactly 1 million turns out to be at or close to the cyclical low. Nonetheless, RBS Greenwich said these data are broadly consistent with the firm's view that the first quarter housing activity will drop as steeply as in any quarter so far in this cycle. "The good news is that the faster builders cut their production, the quicker inventories can be worked off," RBS Greenwich said. But, analysts warned that the inventory situation will not improve on a persistent basis until home sales stabilize. This stability will depend on perceptions of future house prices and the stance of lenders.

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