- U.S. housing starts fell by 6.0% to 1.58 million units (annualized) in January from an upwardly revised 1.68 million units in December. The January outturn came in below market expectations, which called for a slight moderation to 1.66 million units.
- The decline was concentrated in the single-family market, which fell by 12.2% (or 161k) to 1.16 million units. By contrast, starts in the more volatile multi-family segment rose 17.1% (or 61k) to 418k units, more than making up for a 4% decline in the month prior.
- Building permits increased by 10.4% to 1.88 million in January. Both single-family and multifamily permits improved on the month, with the former up 3.8% to 1.27 million and the latter up 27.2% to 612k.
- Housing starts fell across most regions, with the Midwest (-12.3%) leading the way, followed by the West (-11.4%) and the South (-2.5%). The Northeast was the only region to record an improvement, with starts up 2.3%, after a steep 8.4% decline in the month prior.
Key Implications
- Housing starts had a strong run soon after the onset of the pandemic, as low mortgage rates and a shift in consumer preferences toward more spacious dwellings lifted housing demand. As a result, single-family starts rose at rapid pace of about 9% per month in the eight months ending in December 2020. Given this, the fact that starts fell in January is not entirely unexpected. While last month’s increase in building permits suggests that there is likely some more gas in the tank, the rapid run-up in activity recorded over the last few months will be hard to replicate.
- Homebuilding activity is expected to return to a more sustainable pace, potentially starting with the second quarter of the year, but several elements support the notion that it will remain elevated. Homebuilders, for one, despite facing several supply-side hurdles, such as high lumber prices, remain in relatively good spirits. According to the NAHB housing market index, builder confidence is still near the highest level on record, despite having eased a bit in recent months. This positive outlook is underpinned by a very low housing inventory environment and expectations for an improved economic backdrop. With respect to the latter, we expect economic growth to accelerate to 5.7% this year in light of improving public health conditions and another likely jolt of stimulus. This upgraded outlook will be accompanied by improved labor market outcomes, which will support activity in the housing market.
