Residential construction was tricky in December 2015 as both housing starts and building permits posted disappointing numbers, but builder confidence remains elevated and year-end totals hit 2007 levels.
The U.S. Census Bureau and HUD reported Wednesday that housing starts were at a seasonally adjusted annual rate of 1,149,000 in December, down 2.5 percent from the revised November estimate of 1,179,000. Year-over-year, starts are up 6.4 percent from the December 2014 rate of 1,080,000.
The Bureau and HUD also reported that single-family housing starts in December were at a rate of 768,000, 3.3 percent below the revised November figure of 794,000. Approximately 1,111,200 housing units were started in 2015, 10.8 percent higher than the 2014 figure of 1,003,300.
"Given the tight inventory that we've seen in many housing markets across the country, today¹s release is a positive sign for new housing starts. The upward trend reflects upward price movements over the past year, which makes homebuilding less risky," said Ralph B McLaughlin, Ph.D, Chief Economist at Trulia. "In addition, the Federal Reserve's decision to increase interest rates by 0.25 percent last month didn't impact builder confidence in breaking ground on new homes. This is because even though December 2015 new starts are down from November 2015, this was somewhat due to November's numbers being revised upwards and is not within an acceptable margin of error.
In December, authorizations of building permits were at a seasonally adjusted annual rate of 1,232,000, down 3.9 percent from the revised November rate of 1,282,000, but 14.4 percent above the December 2014 estimate of 1,077,000.
On the single-family side, authorizations were at a rate of 740,000, 1.8 percent above the revised November figure of 727,000, the data showed. Overall, an estimated 1,178,400 housing units were authorized by building permits in 2015, 12.0 percent higher than the 2014 figure of 1,052,100.
The report found that housing completions were at a seasonally adjusted annual rate of 1,013,000 in December. This is 5.6 percent above the revised November estimate of 959,000 and is 7.9 percent above the December 2014 rate of 939,000.
Single-family housing completions in December were at a rate of 696,000, this is 8.8 percent above the revised November rate of 640,000. In total, an estimated 965,700 housing units were completed in 2015, 9.3 percent higher than the 2014 figure of 883,800.
Matthew Pointon, Property Economist at Capital Economics believes that builder confidence is not misplaced.
"Despite the Fed raising rates for the first time in nine years in December, housing affordability will be favourable for some time to come," he noted. "Indeed, the turmoil in the financial markets caused by the drop in oil prices has led to a flight to safety, which has caused 10-year Treasury yields and therefore mortgage rates to drop back. The 30-year rate fell to 4.06 percent last week–the lowest since the start of November. Furthermore, banks are gradually easing lending standards, and recent labour market figures show jobs continue to be created at a rapid pace. And with the low inventory of existing homes helping builders sell their new homes quickly, housing starts are set to rise steadily this year."
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