Privately-owned housing starts in December grew at a seasonally adjusted annual rate of 1.078 million units, according to new data from the U.S. Census Bureau. That was an 11.2 percent decline from November’s downward-revised print, significantly worse than anticipated, and the lowest monthly total since 2016. Much of the headline weakness was due to a 22.0 percent plunge in multi-family units (rentals), but single-family housing construction also fell by 6.7 percent. Regionally, single-family starts rose in the South (2.2 percent) and declined everywhere else. On the bright side building permits, a metric of future construction activity, improved in December and ended 2018 with a year-over-year gain of 0.5 percent.
Other encouraging signs for the housing market in 2019 include robust job (wage) growth and a roughly 50 basis points decline in mortgages rates over the past two months. Moreover, the headline optimism index from the National Association of Homebuilders rose to 62 in February, a larger rebound than anticipated and the highest reading since October. Under the hood, measures of current sales conditions, sales expectations six months from now, and prospective buyer traffic all improved in February. NAHB chairman Robert Dietz, though, added that “Affordability remains a critical issue. Rising costs stemming from excessive regulations, a dearth of buildable lots, a persistent labor shortage and tariffs on lumber and other key building materials continue to make it increasingly difficult to produce housing at affordable price points.”
Speaking of affordability, a new report from Case-Shiller showed that home prices in America grew at an average annual rate of 4.7 percent in 2018, the slowest pace of growth recorded since 2015. Similarly, the Federal Housing Finance Agency’s national home price index (HPI) rose by 0.3 percent in December, the smallest gain since March and weak enough to pull the year-over-year increase down to just 5.6 percent, a nearly 3-year low. The broad slowdown in price appreciation is not too surprising following the above-trend growth seen during the past few years and latest uptick in supply. The moderation in housing inflation has the potential to help boost sales, especially in the lower-end of the market where many would-be buyers have seen prices rise faster that wages. If mortgage rates start to increase again, though, this could offset the improvement in affordability for some prospective buyers, while motivate others to make a purchase now before borrowing costs rise even more.
Sources: Econoday, U.S. Census Bureau, Twitter, NAHB, S&P, FHFA, FRBSL
Post author: Charles Couch