U.S. Housing Starts Top Forecasts, Permits Rise to Seven-Month High

(Bloomberg) -- U.S. new-home construction rebounded last month to the best pace since August while permits rose to a seven-month high, a sign homebuilding is potentially stabilizing even as higher prices and borrowing costs pose headwinds.

Residential starts rose 3.2 percent to a 1.26 million annualized rate, exceeding forecasts, after a 1.22 million pace in the prior month that was revised down slightly, government figures showed Tuesday. Single-family starts, a key segment, fell to the lowest since May 2017 and dropped for a third straight month. Permits, a proxy for future construction, rose.

U.S. Housing Starts Top Forecasts, Permits Rise to Seven-Month High

Key Insights

  • The results provide some relief after several months of mixed data raised questions about whether residential construction was heading into a deeper slowdown. While housing starts have bounced around this year instead of accelerating, economists don’t expect the industry to collapse like it did in the mid-2000s.
  • One weak spot was single-family starts, which fell 4.6 percent to an 824,000 pace. Starts for multifamily homes, a category that tends to be volatile and includes apartment buildings and condominiums, jumped 22.4 percent to a 432,000 rate.
  • In an encouraging sign, permits rose 5 percent to a 1.33 million rate, topping estimates for 1.26 million and helped by gains for both single- and multi-family dwellings.
  • The job market remains solid and mortgage rates are stabilizing after recently hitting a seven-year high. At the same time, builders face higher costs for labor and imported materials such as steel, reflecting the trade war, and demand also has cooled amid rising borrowing costs and elevated home prices.
  • The report follows figures on Monday showing a gauge of homebuilder sentiment tumbled in December to the lowest level in three years, with declines across measures of current sales, the outlook and prospective buyer traffic.

What Our Economists Say...

The strength in the latest print stems entirely from a jump in the volatile multifamily market -- it is not a precursor for a upward trend. Rising rates have cooled conditions in the housing market this year. 

-- Tim Mahedy and Carl Riccadonna, Bloomberg Economics (read the full note here)

Markets

  • A gauge of U.S. homebuilder stocks rose the most in a month, adding 2.8 percent as of 11:15 a.m. in New York. All 15 members advanced.
  • The S&P Supercomposite Homebuilding Index is still down 31 percent this year as it heads for the steepest annual drop since 2008.

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  • Starts exceeded the 1.23 million forecast in Bloomberg’s survey of economists, while October’s were revised down to a 1.22 million pace from 1.23 million.
  • Two of four regions posted gains, including a 15.1 percent rise in the South. The Midwest and West showed declines.
  • Starts data have a wide margin of error, with a 90 percent chance November’s figure was between a 6.6 percent drop and 13 percent gain. The report is released jointly by the Census Bureau and Department of Housing and Urban Development in Washington.

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