Nothing Wrong With The Housing Start Data Today

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Today the Census Bureau reported a drop in housing starts to an annual rate of 1,192,000 which is 6% below that for December of 2016. The permit data fared much better coming in at 1,302,000. However, nothing has changed in the housing story with this report. The slow and steady cycle continues its grind higher. I always caution people to never take the headline housing start data or new home sale data too seriously. Unless you look at 4-6 months of trends with the revisions added the headline data isn’t reliable.  We always  see so much confusion in this cycle when we have reports that show a big moves up or down. This leads to big assumption both positive and negative. In truth, it has been a boring slow ride higher for housing starts and new home sales in this cycle.

From Census: 
https://www.census.gov/construction/nrc/pdf/newresconst.pdf

Housing Starts:

Privately-owned housing starts in December were at a seasonally adjusted annual rate of 1,192,000. This is
8.2 percent (±7.7 percent) below the revised November estimate of 1,299,000 and is 6.0 percent (±11.7
percent)* below the December 2016 rate of 1,268,000. Single-family housing starts in December were at a
rate of 836,000; this is 11.8 percent (±6.5 percent) below the revised November figure of 948,000. The
December rate for units in buildings with five units or more was 352,000.
An estimated 1,202,100 housing units were started in 2017. This is 2.4 percent (±2.3%) above the 2016
figure of 1,173,800.

Building Permits:

Privately-owned housing units authorized by building permits in December were at a seasonally adjusted
annual rate of 1,302,000. This is 0.1 percent (±1.4 percent)* below the revised November rate of 1,303,000,
but is 2.8 percent (±1.9 percent) above the December 2016 rate of 1,266,000. Single-family authorizations
in December were at a rate of 881,000; this is 1.8 percent (±1.2 percent) above the revised November figure
of 865,000. Authorizations of units in buildings with five units or more were at a rate of 382,000 in
December.
An estimated 1,263,400 housing units were authorized by building permits in 2017. This is 4.7 percent
(±0.6%) above the 2016 figure of 1,206,600.

We had a massive spike in multifamily last month and that trend obviously couldn’t continue.  As we can see below post 2015 the growth in multifamily sector has cooled off a lot. This is the big factor why total housing starts hasn’t had too much total growth in 2017.

From Calculated Risk:
http://www.calculatedriskblog.com/2018/01/housing-starts-decreased-to-1192.html

StartsShortDec2017
For 2017 we saw 8.5% growth in single family starts and a 10.1% decline in multifamily starts. We haven’t seen much growth in multifamily starts as rent inflation fades.

From BLS:
https://www.bls.gov/charts/consumer-price-index/

Jan Rent Inflation

New home sales are going to close around the 600,000 for 2017,  which is still low historically and in context of a long economic expansion with over 154,000,000 people working, very low.  This cycle has legs but with slow demand from new home sales, I don’t expect single family starts to take off with any vigor. In a few years we will have better demographics for housing and the total numbers will be higher for new home sales and housing starts.  Slow and steady is the name of the game so don’t believe the hype of record-breaking demand or anyone who claims that housing starts should be around 2-3 million today.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2018/01/18/new-residential-housing-starts-down-in-december

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Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami