- U.S. housing starts rose by 5.8% to 1.67 million units (annualized) in December from an upwardly revised 1.59 million units in November. The December outturn beat market expectations for a much more staid increase to 1.56 million units.
- Last month’s strong performance was once again powered by single-family starts, which soared by 12% to 1.34 million units. By contrast, starts in the more volatile multi-family segment fell 13.6% to 331k units.
- Building permits were also up in December, increasing by 4.5% to 1.71 million. Beneath the surface, the patterns were similar to starts with single-family permits rising by 7.8% to 1.23 million. Meanwhile, multi-family permits pulled back by 3% to 483k following a strong uptick of 19.7% the previous month.
- The regional outturn was largely positive as the Northeast was the only major region reporting a decline (-34.8%). Starts saw material increases in the Midwest (+32.1%), the West (+10.2%) and the South (+5.5%).
Key Implications
- There is no stopping housing starts. In a pandemic-ridden year, the strong rebound in residential construction was one of the bright spots for the American economy. Starts exceeded their year-ago levels by about 3% in December after dipping below the one million mark for the first time in five years at the height of the crisis. The recovery was driven by single-family construction as demand for bigger homes and more outdoor space soared. In contrast, multi-family starts struggled to maintain momentum, declining in four of the past six months.
- The remarkable strength in housing demand appears to have carried over to 2021. Indeed, mortgage applications have jumped in the first week of January, buoyed by expectations for additional fiscal stimulus and vaccine rollouts. At the same time, supply-side constraints, alongside a slowdown in economic momentum, have weighed on builders morale in recent months. Building materials prices notably rose by 5.4% last year, effectively adding thousands to the price of newly-built homes. Whether worsening affordability weighs on housing demand will certainly be a theme to keep an eye on over the coming months.
