Housing Starts Decline on Reduced Multi-Family Residential Construction Activity

By February 20, 2013Economy

The Census Bureau and the U.S. Department of Housing and Urban Development said that new residential construction declined from a revised 973,000 in December to 890,000 in January. It is important not to over read this 8.5 percent drop. The decrease was due to a fall in multi-family housing starts, down from 365,000 to 277,000. This highly-volatile figure still represents an upward trend for multi-family units, which have risen 32.5 percent year-over-year. Instead, it appears that December’s multi-family starts number was an outlier.

New single-family residential construction, meanwhile, reached a high not seen since July 2008. Single-family housing starts rose from 608,000 to 613,000, and they were up 20.0 percent over the past year. The monthly and annual increases were primarily in the South and the West, with softness observed in the Northeast and Midwest.

The other positive news out of this report was the housing permits data, which grew from 909,000 to 925,000 for the month. Like the single-family numbers, the housing permits figure was at its highest point since July 2008. Housing permits were up 35.2 percent year-over-year. Both single-family and multi-family unit permits increased in January, and total permits were higher in all regions of the country. Single-family permits were down in the Northeast and Midwest, mirroring the starts data.

Overall, the new residential construction data suggest that the housing market remains a strong suit in the nation’s economy, even with the lower decline in multi-family starts. The longer-term trend suggests that more Americans are building or planning to build homes. The tremendous gains in housing starts and housing permits over the past year have helped to boost real GDP and provide much-needed support to the manufacturing sector. Still, while I suspect that housing starts will surpass the 1 million mark by year’s end, there is much work to be done, as housing sector activity remains well below the levels seen before the bubble burst.

These same trends were seen in yesterday’s release of the National Association of Home Builders and Wells Fargo’s Housing Market Index data. While the Index was largely flat, down from 47 in January to 46 in February, it has increased significantly over the course of the past year. It stood at 28 in February 2012, one year ago. Indeed, builder confidence has continued to rise over the course of the  past year and a half, nearing the all-important threshold of 50 where the number of builders who are positive would equal those who are negative.

The February numbers suggest a slight pull-back in buyer activity, with the index on the traffic of potential buyers edging slightly lower from 36 to 32. Nonetheless, single-family sales – both current and expectations for the next 6 months – were essentially unchanged from last month, with both indices at or just above 50.

NAHB Chairman Rick Judson noted that builder confidence has ““essentially leveled out and held in the same three-point range over the last four months.” The builder from Charlotte, North Carolina, said, “This is partly due to ongoing uncertainties about job growth and consumer access to mortgage credit, but it’s also a reflection of the fact that builders are now confronting rising costs for building materials and, in some markets, limited availability of labor and lots as demand for new homes strengthens.”

Chad Moutray is chief economist, National Association of Manufacturers.


Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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