Numbers: Homebuilders in the United States began building homes at a seasonally adjusted annual rate of about 1.7 million in December, an increase of 1% from the previous month, the US Census Bureau reported on Wednesday. . Compared to December 2020, housing starts increased by 2.5%.
Meanwhile, permits for new homes came in at a seasonally adjusted annual rate of 1.87 million, up 9% from November and 6.5% from a year ago.
Economists polled by MarketWatch expected housing starts to come in at a median pace of 1.65 million and building permits to come in at a median pace of 1.71 million.
Key details: The surge in permits was driven by a 112% increase in the number of housing structures permitted in the North East. The Census Bureau explained the anomaly in a special notice with the housing starts report: Philadelphia introduced multiple property tax changes for residential projects permitted after Dec. 31. Therefore, the developers rushed to get the permits approved before this start. Dated.
However, the Northeast was not the only region to see an increase in building permits. Permit activity also rose nearly 22% in the Midwest on a monthly basis, though it fell in both the South and West.
Most of the increase in permitting activity stems from a series of permits for multi-family buildings and projects with between two and four units. Before seasonal adjustment, the number of multi-family permits issued in December was the highest for any month since 1985. Single-family permits rose only 2% between November and December.
Similarly, the number of single-family homes on which builders have started construction actually fell about 2% on a monthly basis. The overall increase in housing starts was stimulated by a gain of almost 14% in the construction of multi-family projects.
For the year as a whole, however, builders maintained a sustained rate of construction of single-family properties. Before seasonal adjustment, the number of single-family homes completed in 2021 was the highest since 2007.
The big picture: The surge in housing permits in December may be an outlier, but permit activity has remained strong in recent months. This has created a larger backlog of construction projects for homebuilders as construction companies continue to face supply and labor shortages.
Indeed, the number of homes that construction companies have not started work on despite being given permission to start building has increased by 44% compared to a year ago and has increased on a monthly basis. That will give builders plenty of slack to continue construction in 2022, which should infuse the housing market with much-needed inventory.
At current levels, the number of housing units under construction — including single-family homes and multi-family buildings — remains “at a level last seen in 1973,” said Richard Moody, chief economist at Regions Financial Corp., in a rating. “For every single-family unit completed in December, there were 9.5 single-family units under construction, the highest ratio in the lifetime of the data,” he added.
Investors will soon get even more detailed data on homebuilding activity, providing a richer insight into the state of the housing market. The Census Bureau noted that beginning with the January 2022 housing starts report, it will use a different sampling methodology to produce its findings. The agency said the change “will allow for the release on a monthly basis of comprehensive local and county data on new housing authorized by permits.”
Look forward: “Momentum may slow this year as interest rates rise, we still expect homebuilding to remain at healthy levels as builders progress on arrears. Homebuilder confidence has hit a 10-month high in December, while building permits, a good indicator of future home construction, remain elevated,” Robert Kavcic, senior economist at BMO Capital Markets, wrote in a research note.
“Low inventories should continue to support construction activity, but shortages — of inputs and labor — remain constraints for now,” wrote Rubeela Farooqi, chief U.S. economist. at High Frequency Economics in a research note.
“Multifamily construction, which lagged notably at the start of the pandemic, is now the main driver of strength,” Jeffries chief economist Aneta Markowska and money market economist Thomas Simons wrote in a note. of research. “This is likely a response to soaring rents and ultra-low rental vacancy rates.”
“New home inventory is now more than three times higher, relative to sales, than existing home inventory, the largest gap ever, by far. This position is likely to persist for several more months, at least, but homebuilders will also be watching closely how people react to rising mortgage rates; a further increase in new home construction at this stage looks risky to us,” said Ian Shepherdson, Chief Economist at Pantheon Macroeconomics.
Market reaction: The S&P 500 SPX index,
and the Dow Jones Industrial Average DJIA,
edged higher in Wednesday morning trading as investors sifted through the latest batch of bank profits. Stocks have fallen in recent days as the Federal Reserve is expected to raise interest rates soon.
Homebuilder stocks – including Lennar Corp. LEN,
Toll Brothers Inc. TOL,
DR Horton Inc. DHI,
and PulteGroup Inc. PHM,
— were a mixed bag on Wednesday morning. Those stocks fell on Tuesday after the latest edition of the National Association of Home Builders‘ Confidence Index reported waning optimism in the construction sector.