Housing Starts Fell In January, But Permits Are At Their Highest In Over A Decade

• Homebuilding activity in the US slowed down in the month of January, although not as much as economists had initially predicted.
• In contrast, permits for homes surged to their highest level for the month in over 13 years, indicating that the housing market is strong and will help sustain the current economic expansion in the country.
• Producer prices have also increased during the month, more than in any month during the previous year.

The reported data also revealed other insights. According to Chris Rupkey, who works at MUFG as its chief economist, homebuilding activity in the country is surpassing expectations, offering a necessary boost to the economy.

Homebuilding activity dropped slightly by 3.6% in January on a monthly basis, with 1.567 million homes being started. This drop has been preceded by three months of growth. In the month of December, a total of 1.626 million homes were started, which is the highest figure to have been reported since the month of December in 2006.

According to predictions that had been made by economists for January, expected housing starts in the month were estimated to be around 1.425 million units. However, actual figures exceeded this estimation, showing an increase of 21.4% in January on a YoY comparison. The number of housing starts in January 2019 was 1.291 million units, which were up by 3.3% compared to figures reported in January 2018.

As per the reported data, the number of housing permits reached 1.551 million units in the month of January, increasing 9.2%, the highest figure since March of 2007. Experts believe these increases are reflective of the gains experienced by both single as well as multi-family housing categories.

A major boost to housing market activity has been given by the extremely low mortgage rates in the US at this time. As far as the GDP is concerned, the housing industry contributes only 3.1% to it, however, it still has a significant impact on the economy. According to experts, a growing housing market could stabilize the economy against other risk factors such as declining investment by businesses or reduced spending by consumers.

The 30-year fixed mortgage rate currently stands at 3.47%, its lowest point since the month of October 2016 as per reported data by Freddie Mac.

It is important to note that producer prices have also been on the rise. In January, the Producer Price Index, or PPI, rose by 0.5%, the highest jump since October of 2018. In December, it had climbed by 0.2% on a monthly basis. On a yearly basis, the PPI gained 2.1% in January, and 1.3% in December, the highest yearly increase since May 2019. This was higher than expectations set by economists, who had predicted the PPI to increase by 0.1% and 1.6% in January on a monthly and yearly basis, respectively.

Another data set reported earlier had already shown consumer prices, excluding volatile factors such as components of food and energy sectors, to have increased in January. Economists now believe that this, combined with the hike in PPI, could result in higher than expected inflation. Also, the personal consumption expenditures (PCE) also increased by 0.2% in January on a monthly basis and 1.7% on a yearly basis.

Experts believe that this data should give confidence to Fed officials, and prevent any rate hikes from occurring in the current year.

The reported data by the Commerce Department also revealed that single-family homebuilding activity declined by 5.9% in January, amounting to 1.010 million units. Single-family units make up the biggest portion of the total housing market. Housing starts for single-family units was at its highest monthly point in December since June 2007, reaching 1.073 million units. Permits for the same increased by 6.4% in January, for 987,000 units, the highest number to be reported in this respect since the month of June 2007.

As far as multi-family houses are concerned, housing starts increased by 0.7% in January reaching the number of 557,000 units. Permits for buildings that have more than 5 units also increased to a level that has not been reported since the month of July in 1986. Permits for multi-family houses increased by 14.6%, reaching a figure of 564,000 units.

For completed houses, the reported number was 1.280 million homes, a drop of 3.3% on a monthly basis. Under-construction homes amounted to 1.203 million, the highest since the month of February 2007. Experts believe this stock would help reduce housing prices that has increased due to a shortage of homes. However, realtors estimate that housing starts need to go above 1.5 million units and completions need to exceed 1.6 million units on a monthly basis in order to fill out the gap in inventory.