U.S. housing starts plunged 11.2% to 1.08 million (annualized) in December from a downwardly revised 1.21 million in November. The decline was broad-based with the volatile multi-family segment, plummeting 20.4% to 320k units. Single-family starts also declined 6.7% to 758k units. The median consensus forecast was for starts to remain unchanged.
Building permits eked out a meager gain of 0.3% in December, rising to 1.33 million (from 1.32 million in November). The gain was concentrated in the multifamily segment, which rose 4.9% for the month, while single family permits were down 2.2%.
The regional outturn was decidedly on the negative side. While starts in the Northeast were unchanged, all other regions were down – the West by 26.3%, Midwest by 13.2% and the South by 6.0%.
Key Implications
December was a disappointing end to what has been a rough few months for the residential construction market, with starts dropping to the lowest level since September 2016. Nevertheless, for the year, starts were up 3% relative to 2017.
The decline in starts to close the year partially reflects the volatility of financial markets during this period which may have rattled builder confidence, resulting in a three-year low for homebuilder sentiment in December. This added to other headwinds which builders were already facing including higher input costs driven by a tight labor market and tariffs. The notable decline of starts in the West may continue to reflect the impact of wildfires in California which put a dent in homebuilding activity.
Residential building construction has decelerated recently suggesting that contribution to economic activity in Q4 was likely much more muted. While buyers have been grappling with elevated prices and a dearth of inventory, the recent decline in mortgage rates and uptick in wages should support demand going forward. To this end, residential activity is expected to rebound modestly in 2019.
