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Yes, housing starts fell in December, but all is not lost

November’s upwardly revised totals make December look a little worse

The housing start rollercoaster continued in December, with housing starts falling in December from November, which saw a significant increase from October’s unexpectedly dramatic drop.

According to data released Wednesday by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, privately owned housing starts in December hit a seasonally adjusted annual rate of 1,149,000.

That is 2.5% below the upwardly revised November estimate of 1,179,000, and is 6.4% above the December 2014 rate of 1,080,000.

November’s initial report showed housing starts printing at a seasonally adjusted annual rate of 1.173 million, making the drop off in December appear a little worse than it may actually be, according to Trulia’s new chief economist, Ralph McLaughlin.

McLaughlin noted that the December data, while appearing negative, is actually a positive for housing.

“Given the tight inventory that we’ve seen in many housing markets across the country, today’s release is a positive sign for new housing starts,” McLaughlin said.

“The upward trend reflects upward price movements over the past year, which makes homebuilding less risky,” McLaughlin continued.

“In addition, the Federal Reserve’s decision to increase interest rates by 0.25% last month didn¹t impact builder confidence in breaking ground on new homes,” he added.” This is because even though December 2015 new starts are down from November 2015, this was somewhat due to November’s numbers being revised upwards and is not within an acceptable margin of error.”

According to McLaughlin, December’s month-over-month and year-over-year figures should be taken “lightly” because the margin of error shows that the actual number could include zero.

Despite the December decrease, Quicken Loans Vice President Bill Banfield agreed that December’s numbers should not be discouraging.

“The dip in December housing starts shows the month-to-month volatility we’ve experienced in this report,” Banfield said. “All in all, we’ve made significant gains in 2015 as we closed out at the strongest calendar year for housing starts since 2007 – up 1.00 million units from 2014.”

Additionally, the HUD and Census report showed that single-family housing starts in December were at a rate of 768,000, which is 3.3% below the revised November figure of 794,000.

The December rate for units in buildings with five units or more was 365,000.

The report also showed that privately owned housing units authorized by building permits in December printed at a seasonally adjusted annual rate of 1,232,000.

That is 3.9% below the revised November rate of 1,282,000, and is 14.4% above the December 2014 estimate of 1,077,000.

Additionally, the report showed that single-family authorizations in December were at a rate of 740,000, which is 1.8% above the revised November figure of 727,000.

Authorizations of units in buildings with five units or more were at a rate of 455,000 in December.

The report also showed that privately owned housing completions in December printed at a seasonally adjusted annual rate of 1,013,000.

That is 5.6% above the revised November estimate of 959,000, and 7.9% above the December 2014 rate of 939,000.

Single-family housing completions in December were at a rate of 696,000, which is 8.8% above the revised November rate of 640,000.

The December rate for units in buildings with five units or more was 307,000.

“The larger year-to-year increase in starts with 5 or more units reflects greater demand from renter households, which is in-line with the trend in starts we’ve seen over the past few years,” McLaughlin said.

“For prospective homebuyers, this is a positive sign that we expect some relief of tight inventory, especially in the ‘Costly Coasts,’ where starts are up 26.8% in the Northeast and 13.4% in the West,” he added. “Moreover, renters can continue to expect relief due to the surge in 5+ units.”

Lindsey Piegza, chief economist at Stifel Fixed Income, shared McLaughlin’s relative optimism.

“The housing market had a tremendous run up in early spring last year, capturing and surpassing the previous 2013 peak in terms of sales activity,” Piegza said.

“As of late, however, activity has slowed, a trend that has extended into the construction market,” Piegza continued.

“After all, as demand slows, producers will expectedly temper new supply,” Piegza concluded. “While still elevated with positive activity, amid a new rising rate environment, the housing market's contribution to growth is likely to remain positive but modest in the new year without an increased ability on the part of consumers to finance and afford the purchase of large ticket items such as a new home.”

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