The Census Bureau and the U.S. Department of Housing and Urban Development said that new residential construction soared from 851,000 units in November to 954,000 in December. This represents a monthly gain of 12.1 percent and is fastest rate since June 2008. Housing continues to be one of the strongest components in the U.S. economy right now, with housing starts increasing 36.9 percent between December 2011 and December 2012. That is phenomenal growth, to say the least, even as the sector remains well below its peak from a few years ago. These gains were seen in every region, but were particularly strong in the Midwest, Northeast, and West.
While both single-family and multi-family housing starts were higher in December, the largest increase was for multi-family units, up from 281,000 to 338,000. To illustrate the significance of the increase in this segment over the course of the last year, multi-family housing starts were just 177,000 on December 2011. Clearly, the demand for new apartments and condos remains strong.
New single-family residential starts rose from 570,000 to 616,000. This is also a four-year high, as the last time we saw that pace was July 2008. On a year-over-year basis, single-family construction is up 18.5 percent.
Meanwhile, housing permits were largely unchanged, up slightly from 900,000 to 903,000 for the month. In December, single-family permitting increased 1.8 percent; whereas, multi-unit permits were down 2.1 percent. The good news is that the 900,000-unit threshold appears to be holding, and the long-term trend has been extremely positive. Permits are up 28.8 percent year-over-year, with a 27.3 percent increase for single-family units and a 35.0 percent increase for multi-family structures with 5 or more units.
This bodes well for future construction, and I would anticipate that housing starts would approach and perhaps exceed the one million mark by the end of 2013. Helping to boost these figures are very low interest rates, with the average 30-year mortgage falling to 3.38 percent, according to Freddie Mac.
This helps to explain why home builders remain so confident. The National Association of Home Builders and Wells Fargo found that their Housing Market Index (HMI) was unchanged in January at 47. This figure is very close to the threshold of 50 whereby more builders would be positive than negative in their assessment of the current economic environment. The HMI has grown tremendously over the past year or so, up from 13 in June 2011 and 25 in January 2012.
In December, the strongest gains were seen in the South and West, both of which had indices above 50 for the first time in several years. There were weaknesses seen in the Northeast and Midwest. Barry Rutenberg, the chairman of the NAHB, blamed political headwinds for some of the current weaknesses. He said, “… uncertainties stemming from last month’s fiscal cliff negotiations contributed to the pause in builder confidence and continuing discussions among policymakers related to spending cuts and the future of the mortgage interest deduction could put a damper on housing demand in the coming months.”
Chad Moutray is chief economist, National Association of Manufacturers.