Housing Starts End 2018 on Sour Note

Housing starts finished 2018 on a disappointing note, falling by more than 11 percent from November improving slightly by 2017, HUD and the Census Bureau reported yesterday.

The report, originally scheduled earlier in the month but delayed because of the recent government shutdown, said privately owned housing starts in December fell to a seasonally adjusted annual rate of 1.078 million, down by 11.2 percent from the revised November estimate of 1.214 million and down by 10.9 percent from a year ago.

Single‐family housing starts in December fell to 758,000; 6.7 percent below
the revised November figure of 812,000. The December rate for units in buildings with five units or more fell to 302,000. HUD/Census estimated 1.246 million housing units started in 2018, 3.6 percent higher than 2017 (1.203 million).

Regionally, starts fell across the board. In the South, starts fell by 6 percent in December to 630,000 units, seasonally adjusted, from 670,000 units in November but increased by 6.1 percent from a year ago. In the West, starts fell by 26.3 percent to 216,000 units in December from 293,000 units in November and fell by nearly 40 percent from a year ago.

In the Midwest, starts fell by 32.2 percent in December to 125,000 units from 144,000 units in November and fell by 34.1 percent from a year ago. In the Northeast, were unchanged in December at 107,000 units and improved by 21.6 percent from a year ago.

“December’s astonishingly weak housing starts data confirm many of the fears builders voiced late last year,” said Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C. “Mortgage rates had pushed up to near 5%, which threatened to worsen the affordability crisis that has been dragging home sales and new home construction lower since March of last year. The December data show just how extensive the damage to the housing market has been.”

“We are not looking for particularly big things from the housing sector in 2019, but an ending to the slide that began last spring would provide a great deal of resilience to an expansion that looked uncomfortably precarious at the end of 2018,” Vitner said.

“With two months’ hindsight, there were obvious headwinds to the housing market late last year that have since eased, said Aaron Terrazas, senior economist with Zillow, Seattle. “High interest rates, a stock market freefall and the partial government shutdown translated into a drag on the housing market, reflected now in most metrics.”

Noting the delay in the report, Terrazas said December “now feels like a lifetime ago. Mortgage rates are down from seven-year highs to 12-month lows, and the interest rate outlook is less ambitious. While homeowners can move quickly to list a home for sale or pull it off the market when the market shifts, builders have a slower, wider turn radius in reacting to interest rates and other market factors. As a result, builders will be less agile at reacting to the shifting economic outlook. However, the stronger market conditions in early 2019 mean than home builders have been able to offload inventory that had been piling up late last year.”

Mark Fleming, Chief Economist with First American Financial Corp., Santa Ana, Calif., said new supply is simply not meeting rising demand.

“Housing starts, and more importantly home completions declined this month,” Fleming said. “Both will need to increase to keep pace with rising demand from the largest generation, Millennials, as they enter their prime home-buying years.”

Fleming said Millennials aging into homeownership and baby boomers aging in place will continue to put pressure on the housing market. “While multi-family construction has returned to a historical average level, single-family construction continues to lag the pre-recession historical average and will need to improve to meet millennial demand,” he said.

Fleming, however, noted a silver lining. “While housing starts and completions declined this month, modest growth in building permits, a leading indicator of housing starts, represents the green shoots of much needed new housing supply,” he said.

The report said privately owned housing units authorized by building permits in December rose to a seasonally adjusted annual rate of 1.326 million, 0.3 percent higher than November and 0.5 percent higher than a year ago. Single-family authorizations fell by 2.2 percent; Multifamily rose slightly. An estimated 1,310,700 housing units were authorized by building permits in 2018, 2.2 percent higher than 2017 (1.282 milllion). 

Privately owned housing completions in December fell to a seasonally adjusted annual rate of 1.097 million, 2.7 percent below November and 8.4 percent lower than a year ago. Single‐family housing completions in December fell by 0.1 percent. The December rate for units in buildings with five units or more was 296,000. The report estimated 1.191 million housing units were completed in 2018,  3.4 percent higher than a year ago.