Housing Starts Disappointed in December, but Permits Point to Optimism for the Coming Months

The Census Bureau and the U.S. Department of Housing and Urban Development said that new housing starts disappointed in December, pulling back sharply from a 13-month high in November. New residential construction decreased by 8.2 percent from 1,299,000 units at the annual rate in November to 1,192,000 in December, a three-month low. The decline in activity in the latest data came entirely from a significant decline in single-family starts, off by 11.8 percent from 948,000 to 836,000 units, with notable decreases in every region of the country except the West (which was unchanged). It is perhaps possible that poor weather might have played a role in diminishing activity in December. More encouragingly, single-family starts have increased 3.5 percent over the past 12 months, up from 815,000 units in December 2016.

At the same time, new multifamily residential construction starts inched up from 351,000 units in November to 356,000 in December, a 1.4 percent increase. Yet, multifamily activity can be highly volatile from month to month, and over the past 12 months, were down by a whopping 22.6 percent from 460,000 units in December 2016.

Such news might be more discouraging if there was not an expectation that December’s softer data might be a temporary blip toward stronger figures in the coming months. Along those lines, home builder optimism remains highly elevated with a healthy outlook for sales over the next six months. In addition, housing permits were also solid, essentially unchanged but down from an annualized 1,303,000 units in November to 1,302,000 units in December. It was the third consecutive month with permits—a proxy of future activity—exceeding 1.3 million units, with December’s reading not far from the 1,316,000 reading in October, which was its highest point since August 2007.

Housing permits have risen 2.8 percent year-over-year, up from 1,266,000 units in December 2016. In December, single-family permits increased from 865,000 to 881,000 units, a level not seen since August 2007. Over the past year, permitting in the single-family segment has increased by 6.1 percent. The upward movement in single-family activity helps to explain the upbeat sentiment among builders and the strong forecasts for growth for 2018 in the housing market as a whole. Nonetheless, multifamily permitting declined for the second straight month in this report, off from 438,000 to 421,000 units, or 3.9 percent, with a year-over-year decline of 3.4 percent.

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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