- US housing starts were 20k above consensus at 1,246k annualized units in January, although that represented a decline relative to the upwardly revised 1,279k reading in December (was 1,226k).
The decline in January housing starts was due to a 10% drop in the volatile multi-unit component, which came off of December’s 1½-year high. The more stable single unit component recovered from the previous month’s decline, rising to 823k annualized units. January’s single-unit figure was slightly below the Q4/16 average with single unit starts having surged to a cycle high in October.
Building permits rose for a second consecutive month to reach their highest level in more than a year (1,285k annualized units in January). With that solid increase, permit issuance has outpaced starts on balance in recent months, supporting a positive trend in starts in the near-term.
Our Take:
Housing starts were stronger than expected in January, and an average upward revision of 50k in the prior two months makes for an encouraging report overall, even if total starts moderated in the month. As well, the headline decline masked an increase in single unit starts that has a greater impact on residential investment. Today’s report indicates modest upside risk to our forecast for housing investment to rise by around 4% in Q1/17, although an increase of closer to 6% would not impact our overall forecast for a 2.3% annualized increase in GDP in the quarter. We expect an ongoing recovery in housing, including increased homebuilding, will provide modest support to economic activity this year amid a strong labour market, still-easing lending conditions, and strong consumer and homebuilder confidence. Some offset should come from slight deterioration in affordability, particularly as rates rise from historically low levels, although we do not see that precluding a continuing upward trend in housing.
