Housing Starts Begin Year on Solid Footing

Housing starts jumped by nearly 10 percent in January, HUD and the Census Bureau reported Friday, offering analysts–and home buyers–a glimmer of hope for the spring buying season.

The report said privately owned housing starts in January rose to a seasonally adjusted annual rate of 1.326 million, up by 9.7 percent from December’s revised 1.208 million and 7.3 percent higher than a year ago (1.236 million). Single-family housing starts rose by nearly 4 percent to 877,000 from December’s revised 846,000. For units in buildings with five units or more, starts jumped by nearly 20 percent to 431,000 from December (360,000) and by 3.1 percent from a year ago.
Regionally, starts improved in the South, West and Northeast. In the South, starts increased by 9.3 percent in January, seasonally adjusted, to 655,000 units from 599,000 in December but fell by 3.4 percent from a year ago. In the West, starts rose by 10.7 percent to 393,000 units in January from 355,000 in December and improved by a whopping 70.1 percent from a year ago, when only 231,000 starts logged. In the Northeast, starts jumped by 45.5 percent to 128,000 units in January from an anemic 88,000 in December and improved by 2.4 percent from a year ago. Only the Midwest saw a decline in starts, dropping in January by 10.2 percent to 150,000 units from 167,000 in December and fell by nearly 26 percent from a year ago.

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said while January data should always be viewed with “caution,” the solid report was reassuring. “This winter has not been devoid of winter weather, but conditions in the South and West, where the bulk of new construction has taken place, have been fairly mild and allowed a bit more construction to begin than usual, he said.

Vitner noted monthly data have “certainly been volatile. Revisions to the November and December data now show starts rising 3.0 percent in November and then falling 6.9 percent in December, before rebounding 9.7 percent this past month,” he said. “The volatility is evident in both the single-family and multifamily series. In addition to the weather impact, the recent pace of starts is being influenced by the rebound from last summer’s devastating hurricanes, which reduced starts in August and September.”

The report said privately owned housing units authorized by building permits in January rose by 7.4 percent to a seasonally adjusted annual rate of 1.396 million from December’s revised 1.3 million. Single-family authorizations in January came in at 866,000, 1.7 percent higher than December; authorizations of units in buildings with five units or more jumped to 479,000 in January, up by more than 25 percent from December and 3 percent higher than a year ago.

HUD/Census said privately owned housing completions in January fell to a seasonally adjusted annual rate of 1.166 million, down by 1.9 percent from the revised December estimate of 1.188 million but 7.7 percent higher than a year ago. Single-family housing completions in January rose by 2.2 percent to 850,000; the January rate for units in buildings with five units or more was 305,000, down by 11.1 percent from December (343,000) but up by 10.1 percent from a year ago.

Mark Fleming, chief economist with First American Financial Corp., Santa Ana, Calif., said growth in residential construction jobs supports further improvement in the pace of home building, because building a home does not readily lend itself to outsourcing and automation.

“Builders broke ground on more homes this month compared to last year,” Fleming said. “Housing completions, the number of net new homes added to the housing stock, also increased dramatically compared with a year ago. This signals some relief for the supply shortage. The rise in permits, the leading indicator of housing starts, in conjunction with the rise in construction employment this month, signals an upward trajectory for housing starts in 2018. Based on the data this month, construction employment has eased as a headwind to housing starts.

“Builders have ramped up construction of single-family homes and completions should rise going into the spring selling season,” Vitner said.