Thursday's U.S. Census Bureau report on new residential construction [1] showed a somewhat-expected slow in the pace of housing starts for January, falling 6% after December's 8.2% growth.
Single-family housing starts increased 12.2% over the month to 1.16 million annualized units, reversing December's spike. Single-family starts were up 15.6% from the year prior.
"Despite the pullback in single-family starts, the pace of construction continues to be strong and was similar to the pace of October and November," Fannie Mae's Chief Economist Doug Duncan said. "We believe tight inventories of existing homes for sale and continued interest in suburban locations by many buyers bode well for new single-family construction going forward.
He continues, "That said, mortgage rates are no longer declining, and we believe homebuilders are near their short-term capacity constraints. Comparative softness in the starts measure is partially due to the ‘catch up’ phase from the second half of last year subsiding. In part due to COVID-related shutdowns last spring, the pace of starts outpaced the normal relationship to total homes under construction. Now a more normal balance is occurring. Even though we believe the period of rapidly increasing starts has passed, we expect a continued strong construction pace going forward—the notable exception is that February’s report may be affected by unseasonably cold weather and related power disruptions currently occurring in Texas and other states."
Austin Niemiec, EVP of Rocket Pro TPO agrees a slowdown is typical for this time of year.
"It seems the seasonal lull of building is upon us, as this is the first decrease in new home construction in more than half a year. Brokers must ensure their business is reinforced in the winter months to come out the gates swinging once purchase season starts back up again—which has been creeping earlier and earlier into the year as of late. This dip in building means there won’t be as much new inventory as hoped, so brokers must assure their clients they can provide certainty a loan will close with them, since buyers are still competing for a limited number of homes."
First American Deputy Chief Economist Odeta Kushi also discussed the impact of housing-start stats on the overall market.
"Mortgage rates are expected to remain low and millennials will continue to age into their prime homebuying years. Finally, the other half of the equation, supply, is beginning to accelerate to keep up with the pace of household formation," she said. "However, given the underbuilding that took place in the decade following the Great Recession, it will take years for builders to close the deficit.”