Housing Starts Finish Year Strong–Sort of

Housing starts jumped by more than 11 percent in December, HUD and the Census Bureau reported yesterday, finishing the year on a stronger note. But most of the gain came at the expense of single-family starts.

The report said privately owned housing starts in December came in at 1.226 million, seasonally adjusted annually, up by 11.3 percent from November’s revised 1.102 million and 5.7 percent higher than a year ago (1.160 million). Single-family housing starts totaled 795,000, down by 4 percent from November (828,000); the rate for units with five units or more rose to 417,000.

Regionally, results were mixed, with the largest region, the South, posting a 1.4 percent decline in December (572,000 units, seasonally adjusted), from November (580,000) and declining by 3.2 percent from a year ago. The other three regions saw sharp gains. In the West, starts jumped by 23.5 percent to 331,000 units in December from 268,000 in November and improved by 33 percent from a year ago. In the Midwest, starts rose by 31.2 percent to 227,000 units from 173,000 in November and improved by nearly 40 percent from a year ago. In the Northeast starts rose by 18.5 percent in December to 96,000 units from 81,000 units in November but fell by 38.5 percent from a year ago.

For the year, HUD/Census estimated 1.166 million housing starts, up nearly 5 percent from 2015 (1.112 million).

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., cautioned that the report showed “hubris.”

“Although the strong reading is welcome, the level of starts looks to be bit exaggerated, especially as we are in the seasonally slow period of the year and swings in the data due to the seasonal adjustment process and weather distortions play a larger role in the headline reading,” Vitner said. “The three-month moving average shows starts are up a more moderate 5 percent in December, with single-family activity eking out a 0.6 percent gain and multifamily increasing 16 percent.”

Vitner noted while the trend in multifamily starts seems to be “unrelenting,” some “payback” can be expected in the coming months. “Starts jumped a strong 57.3 percent in December to a 431,000 unit-pace,” he said. “On the other hand, permits fell 9.0 percent to a 393,000 unit-rate. With lending standards in multifamily tightening and apartment rent growth moderating, we expect the pace of multifamily building to cool in 2017.”

Ralph McLaughlin, chief economist with Trulia, San Francisco, noted despite the modest bump, housing starts in 2016 were the best since 2007 and represents promising growth for the sector in 2017. “While starts increased modestly in December, they are only at 62 percent of their long-run average,” he said. “Clearly, starts have much room to grow to meet historical norms.”

The report said privately owned housing units authorized by building permits in December fell to a seasonally adjusted annual rate of 1.210 million, 0.2 percent below November (1.212 million) but 0.7 percent higher than a year ago. Single-family authorizations in December rose to 817,000; 4.7 percent higher than November (780,000). Authorizations of units in buildings with five units or more came in at 355,000. HUD/Census estimated 1.187 million housing units authorized by building permits in 2016, 0.4 percent higher than a year ago (1.182 million).

HUD/Census said privately owned housing completions in December fell by nearly 8 percent to a seasonally adjusted annual rate of 1.123 million from 1.219 million in November, but 8.7 percent higher than a year ago (1.033 million). Single-family housing completions in December fell by 0.9 percent to 761,000; units in buildings with five units or more totaled 355,000. HUD/Census estimated 1.062 million housing units completed in 2016, 9.7 percent higher than a year ago (968,200).

“Looking ahead, the underlying fundamentals and still rising credit availability suggest starts have more room to run,” Vitner said. Wells Fargo expects starts to average a 1.17 million unit pace in 2017 and 1.22 million unit rate in 2018.