Housing inventories hit a 16-year high in January, according to the Department of Commerce.

But housing starts took a leap in February, showing that home builders are continuing construction despite their full inventories. Seasonally adjusted starts of private homes hit 1.49 million at an annual rate, a 3% increase from January and 14% above the level of February 1995.

Although the accuracy of the housing starts data are questioned by some experts, all are baffled by builders' activity.

"The real story here is, 'Why do home builders continue to build?'" said Dale Jacobson, survey statistician at the Department of Commerce.

Although it's possible that builders are playing catch-up, working on homes that were scheduled to have been started during the Northeast's blizzard-ridden January, "it's a stretch," said David Lereah, chief economist at the Mortgage Bankers Association of America.

"Whatever you hear about the weather is probably wrong," said Mr. Jacobson. The only weather that would really affect building, he added, would be a warm winter in the Midwest and Northeast that would allow foundations to be dug year-round.

The nation would take more than six months to absorb the 380,000 houses built but not sold at the current pace of buying.

But given the interest rate environment, homebuying activity is sure to slow down, at least temporarily. "The bad news is that rates really did rise," said Mr. Lereah. And they were holding steady last week, at 8.09% for a 30-year, fixed-rate loan, after the previous 30 days' average rate jump of 0.8% nationwide.

"This is really hurting lending because it's making homes less affordable," Mr. Lereah said. A rate jump of just half a percentage point typically knocks 75,000 first-time homebuyers from the marketplace, he added.

But rate increases do not necessarily mean dire news for the mortgage market in the longer term, said Dean Crist, research economist for the National Association of Home Builders.

"A lot of potential homebuyers are going to back off," he said. "But if rates don't skyrocket up to 9, 10, or 11, we'll see them coming back into the homebuying market in a month or so."

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