New home construction slowed for the second month in a row in January, failing to meet expectations because of extreme weather conditions.

After a solid end to 2013, housing starts in January fell 16% to a seasonally adjusted annual rate of 880,000, the Commerce Department said Wednesday. That was down from an upwardly revised rate of 1,048,000 in December.

Unusually cold weather was the driving force behind the lackluster number.

Building permits also dropped 5.4% last month to 937,000, signaling slow growth in future construction. That was down from a revised December rate of 991,000.

Source: U.S. Census Bureau

A drop in home starts and building permits is common during the winter, but January’s rates were still well below expectations.

New home construction at this level barely keeps up with population growth. Economists believe home starts need to rise to an annual rate of about 1,500,000 in order to meet the growing demand to rent and buy homes.

But builders have been reluctant to move forward with construction because of the weather.

“Starting new housing when you have a large expense in preparing the ground and snow removal doesn’t make sense,” said Kevin Harris, Chief Economist at Informa Global Markets. “So as a cost saving measure, builders would have delayed starts.”

In line with this idea, builder confidence in February fell 11 points, according to the National Association of Home Builders and Wells Fargo.

Home starts even dropped in parts of the country where temperatures were slightly warmer. Shoppers in the West will be affected the most because of the high demand for homes, said Walter Molony, spokesman for the National Association of Realtors.

“There’s no inventory out there,” said Molony. “Buyers find themselves under a lot of pressure to make a decision and are bidding over the asking price. That’s unhealthy.”

Single-family homes saw the biggest decline in January at a rate of 573,000, adding little to the inventory of homes on the market. That was 15.9% below December’s revised rate of 681,000. Construction on buildings with more than 5 units also dropped 12.8%.

Despite weak home starts, economists are optimistic construction will improve in the spring and summer to meet some of the pent up demand.

“When the weather clears and the economy gradually moves back towards normalcy later on this year, I think we will see a pick up in housing starts,” said David Kelly, Chief Global Strategist for JPMorgan Funds.

If housing starts increase and sales remain flat, as they are expected to, home prices may start to level off later in the year.