Economic Report: New-home construction activity soars to highest level in over a decade, as builders rush to produce single-family homes
The numbers: U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.67 million in December, representing a 5.8% increase from the previous month’s figure, the U.S. Census Bureau reported Thursday.
Permitting for new homes occurred at a seasonally-adjusted annual rate of 1.71 million, up 4.5% from November.
Compared with December 2019, housing starts were up 5%, while permits were up 17%. It was the highest level housing starts and building permits have reached since 2006.
Both figures came in above analysts’ expectations, reflecting growth in the single-family sector. Economists polled by MarketWatch had expected housing starts to occur at a pace of 1.56 million and building permits to come in at a pace of 1.61 million.
What happened: Growth in the single-family sector drove the rise in both housing starts and building permits. On a monthly basis, single-family starts were up 12%, while single-family permits were up 7.8%. Comparatively, new construction on multifamily buildings fell 15.2% between November and December, while multifamily permits for buildings with five or more units slipped 2%. Permits for duplexes, triplexes and quadplexes dropped 11.5%.
On a regional basis, all parts of the country saw permitting activity increase except for the Northeast, where it fell some 7.2%. Though even in the Northeast, single-family permits were up on a monthly basis.
Similarly, the Northeast was the only region to see a decline in housing starts — both overall and for the single-family sector. The Midwest experienced the largest growth in housing starts, with a 32% increase.
The big picture: Demand among buyers might be cooling in the face of high home prices and a lack of inventory, but it still remains elevated compared to last year. That gives builders “strong incentive to keep building,” said Danielle Hale, chief economist for Realtor.com.
Overall, housing starts for 2020 were up nearly 12% from 2019, in spite of the slowdown this past spring sparked by the pandemic. Builders’ optimism might be waning slightly in the face of slowing foot traffic from buyers and rising costs associated with purchasing land and materials. But the underlying need for new homes is still there, which should keep the building sector busy for some time to come.
What they’re saying: “New mortgage applications are also rising again, perhaps to get ahead of higher interest rates. Despite slow population growth, residential construction remains well-supported by (so far) record-low mortgage rates, record-lean resale listings, and the migration of teleworkers to the suburbs,” Michael Gregory, deputy chief economist at BMO Capital Markets, wrote in a research note.
“Housing starts have recovered and were at their strongest pace in more than 14 years. Amazing, considering the COVID-related downturn in the spring. There aren’t enough homes in this country to go around, and we need a long-lasting surge of construction to meet demand,” said Holden Lewis, home and mortgage expert at personal-finance website NerdWallet.