Homebuilding accelerated in November, extending the prior month’s gains as rebuilding following hurricanes Harvey and Irma continued. Housing starts increased by 41k to 1,297k, surpassing consensus expectations for a moderation in activity to 1,250k. Building permits also surprised to the upside, clocking in at 1,298k, following a +19k revision to October’s reading.
Single-family starts accounted for the entirety of the increase in activity, rising by 47k to 930k, on top of an upwardly revised (+6k) October reading. The more volatile multi-family segment saw building fall by 6k to 367k, and this was compounded by a downward revision (-40k) to October’s reading.
Adding to the good news, single-family permits rose (+12k) from an upward revised October reading (+11k), to register at 862k. Multi-family permits fell (-30k) to 436k.
Activity in the South continued to rebound (+69k) as hurricane-related rebuilding progresses. Single-family starts in the South registered the fastest pace of building since 2007 at 515k. Activity in the West also picked up (+55k), while the Northeast (-57k) and the Midwest (-26k) saw a slowdown in building.
Key Implications
Today’s report largely reflects sustained momentum from hurricane rebuilding, which got underway in October and is slated to continue into 2018. The strong pick-up in the single-family market is encouraging given the inventory constraints that have led to fast price growth in this segment. Furthermore, the increase in permits for single-family homes indicates that building will continue to be brisk, with the effects of the hurricanes gradually fading over 2018. Importantly, the gain was not entirely a result of hurricane rebuilding, with strong fundamentals in the West leading to the fastest pace of single-family starts there since 2007.
Fundamentals in the national housing market also remain strong, with persistent wage gains and still-low mortgage rates continuing to support demand. While potential changes to the tax code, including a downsized mortgage interest deduction and a cap on the property tax deduction, could impact prices in a select few high-priced markets, including New York, California and D.C., we expect strong demographics and labor market conditions to support demand. Builders echoed this optimistic sentiment in December, as hurricane-related uncertainty evaporated, leading the NAHB’s index to reach an 18-year high.
Although builders will continue to face challenges related to labor scarcity in the coming months, due to increased demand for construction workers in the hurricane-affected South, we expect homebuilding to continue to grind higher over the medium-term. That should result in residential investment being a positive contributor to growth in the coming quarters.
