New residential construction cooled in January and U.S. existing-home sales slowed after the strongest year since 2007, representing a break in the momentum for the industry, economists said before reports this week.

Builders started work on 920,000 houses at an annual rate following December’s 954,000 pace that was the fastest since June 2008, according to the median forecast of 73 economists surveyed by Bloomberg before Commerce Department data on Wednesday. Purchases of previously owned properties fell, while the cost of living was contained, other figures may show.

More hiring and easier access to credit would help complement historically low mortgage rates and further stoke a housing market that emerged last year as a bright spot for the economy. Little inflation is providing Federal Reserve policy makers with the scope to hold down borrowing costs, minutes of their January meeting may also show this week.

“The January numbers for housing will be a bit softer after the exaggerated strength toward the end of the year,” said Josh Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Housing will recover at a modest pace this year.”

For all of last year, builders began work on 780,000 homes, a 28 percent increase from 2011 and the third straight annual gain. Even with the yearly improvement, housing starts remain short of the 2.07 million in 2005 at the peak of the boom, which was three-decade high.

The Commerce Department may also report that building permits, a proxy for future construction, climbed 1.2 percent in January to a 920,000 annual rate, the highest since July 2008, according to the Bloomberg survey median.

Apartment Construction

Increased household formation is also encouraging builders to diversify into construction of apartments. Miami-based Lennar Corp. in January said it plans to construct $1 billion of multifamily properties. Toll Brothers Inc., the largest U.S. luxury-home builder, said it will begin development of high-end college dormitories.

Sentiment in real estate is improving as the selling season gets under way. The period is traditionally viewed as starting the weekend after the National Football League’s Super Bowl, which was held Feb. 3.

The National Association of Home Builders/Wells Fargo index of builder confidence may have climbed this month to 48, the highest reading since 2006, from 47 in January, economists in the Bloomberg survey projected before Thursday's report.

PulteGroup Inc., Lennar, and D.R. Horton Inc., the top three U.S. homebuilders by market value, said orders rose in the most recently reported quarter.

Builder Shares

The Standard & Poor’s Supercomposite Homebuilding Index has surged 69.1 percent in the 12 months to Feb. 15, outpacing a 13.1 percent gain in the broader S&P 500.

“The combination of incredibly low mortgage rates, continued increases in rental rates and especially rising home prices, and very low -- and likely to stay low -- inventory levels for housing lead us to believe that 2013 will be a better year for U.S. housing than 2012,” Richard Dugas, chief executive officer of Bloomfield Hills, Michigan-based PulteGroup, said on a Jan. 31 earnings call.

Fewer listings may have prompted purchases of previously owned houses to drop in January to a 4.9 million annual rate from 4.94 million the prior month, the Bloomberg survey median showed before the National Association of Realtors’ release on Thursday. The projected pace still exceeds the 4.65 million properties sold last year.

The number of properties on the market decreased in December to 1.82 million, the fewest since January 2001, according to the Realtors group.

Federal Reserve

Fed officials are debating how long to continue their bond buying effort, designed to foster economic growth and cut 7.9 percent unemployment. The central bank last month kept its monthly purchase pace at $40 billion in mortgage-backed securities and $45 billion in Treasury purchases.

Minutes of the Fed’s Jan. 29-30 meeting, due on Wednesday, may provide “potential color on the timing and winding down” of the so-called quantitative easing program, MFR’s Shapiro said. At this time, “inflation is not a constraint on what the Fed is doing,” he said.

The view may be reinforced by price measures from the Labor Department. The consumer-price gauge rose 0.1 percent in January, the first increase in three months, economists in the Bloomberg survey projected ahead of the Thursday report.

The core index, which excludes volatile food and energy expenses, rose 1.8 percent in January from a year earlier, the smallest gain since July 2011, according to the survey median.