Housing Starts Fall Back to Earth

Analysts said after the HUD/Census Bureau’s New Residential Construction report for October that housing starts had room to grow even after a 25 percent over-the-year spike up to an annual rate of approximately 1.34 million.

Instead of expanding in November, however, housing starts did an about face, declining by nearly 7 percent over-the-month and almost 19 percent over-the-year down to 1.09 million, according to HUD and the Census Bureau’s November 2016 report. That includes both single- and multi-family starts; in November, single-family housing starts were on an annual pace of 828,000, a 4.1 percent drop from October.

“Today’s new construction report confirmed just how disappointing new construction has been this year,” realtor.com Chief Economist Jonathan Smoke said. “The seasonally adjusted rate of starts in November was down a whopping 19 percent from October, a much greater drop than anticipated. But the 26 percent increase in October was really an aberration, and can be attributed to factors such as mild weather and the 33-percent rise in multifamily starts.”

The news was not good for permits issued for residential housing in November, either. The number of permits authorized declined by 4.7 percent over-the-month and 6.6 percent over-the-year down to an annual rate of 1.2 million during November, according to HUD and the Census Bureau’s November 2016 report.

“The trend in permitting data, which is a bit more reliable and consistent, is also not encouraging with seasonally adjusted rates of permitting down 5 percent from October,” Smoke said. “However, November’s seasonally adjusted rate of permits was 1.201 million, keeping us above the 1.2 million mark for three straight months—a consistent level of permitting not seen since 2007.”

Completions were the bright spot of November’s Residential Construction Report, totaling an annual pace of 1.22 million—representing increases of 15.4 percent over-the-month and 25.0 percent over-the-year, respectively.

With the National Association of Home Builders (NAHB) reporting that builder confidence was higher in December than it has been for more than 11 years, there may be better days ahead for new home construction.

“Because of the lack of progress in new construction this year, housing stock has not kept pace with household growth,” Smoke said. “And that’s why low vacancies in rentals and very low inventories of homes for sale lead to higher rents and prices. Now that permitting once again exceeds the rate of starts, we can expect better growth ahead in starts and completions. Yesterday’s homebuilder confidence data pointed to a big post-election jump in builder confidence.”

Trulia Chief Economist Ralph McLaughlin stated, “Housing starts dropped in November, and the drop was more than due to more than October’s big increase. For context, housing starts in November were the second lowest since October of last year. While starts fell in November, they continue to provide an important release valve for solid demand in the housing market, but still have much more room for growth. Starts in November were only 55 percent of their long-run average, but year-to-date they are up 4.8 percent. We’re confident that housing starts will grow slow and steady through 2017 and beyond. Yesterday’s large jump in homebuilder sentiment is a good sign that they think so too. This will bring continued relief to homebuyers who have been stymied by a supply-constrained market over the past few years.”

Click here to view the complete report from HUD/Census Bureau.