Bad Weather Likely Contributed to the 3.8 Percent Decline in Housing Starts in January

The Census Bureau and the U.S. Department of Housing and Urban Development said that new housing starts declined 3.8 percent, down from an annualized 1,143,000 in December to 1,099,000 in January. Bad weather likely contributed to this decline, dampening construction activity. Despite the recent easing, the longer-term trend continues to move slowly-but-surely higher, up from an average of 1,067,833 in the first half of 2015 to 1,137,714 over the past seven months. With that said, these data have been highly volatile from month-to-month, especially the multifamily segment, and the current pace was not much higher than the 1,080,000 figure seen in January 2015.

Single-family (down from 761,000 to 731,000) and multifamily (down from 382,000 to 368,000) were both lower for the month. Single-family starts reached a post-recessionary high in November, with 786,000 units, but have slowed in the two months after that. Still, these data have moved generally higher overall, up from 577,000 and 706,000 in January 2014 and January 2015, respectively. Multifamily activity has had larger swings from month-to-month, ranging from a low of 300,000 in February 2015 to a high of 466,000 in September.

Meanwhile, the housing permits data provided some encouragement despite edging marginally lower, down from 1,204,000 units to 1,202,000. It was the third straight month with 1.2 million permits at the annual rate, and it could suggest that new residential construction activity will pick up in the coming months, with starts returning to the 1.2 million unit pace. The underlying data for January were mixed, with single-family permitting down from 732,000 to 720,000 but multifamily activity up from 472,000 to 482,000. Even with a reduced figure, single-family permitting was just slightly lower than December’s post-recessionary high.

This report mirrors the home builder confidence data out yesterday. The National Association of Home Builders and Wells Fargo reported that the Housing Market Index (HMI) eased, down from a revised 61 in January to 58 in February. Numbers greater than 50 indicate that builders are more positive than negative on net in their views of the housing market. While these data continue to reflect mostly upbeat sentiment among homebuilders, the HMI fell to its lowest level since May, with activity weaker in every region. Overall, homebuilder sentiment has pulled back since reaching a post-recessionary peak in October at 65.

Nonetheless, homebuilders remain optimistic about single-family sales over the next six months. The sales index of expected single-family activity picked up from 64 in January to 65 in February. While this was down from 75 in October, these data continue to indicate strong demand expectations in the outlook.

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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