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Housing starts unexpectedly decline 2.5 percent in December

New-home construction unexpectedly fell in December, indicating the industry lost some momentum entering 2016.

Residential starts declined 2.5 percent to a 1.15 million annualized rate, from the prior month’s revised 1.18 million pace, a Commerce Department report showed Wednesday. The median forecast in a Bloomberg survey called for an increase to 1.2 million. Permits, a proxy for future construction, also fell on a decline in applications for multifamily projects.

Housing demand would benefit from faster wage growth and more broad-based access to credit, allowing more Americans to take advantage of low mortgage rates. The report showed a pickup last month in applications to build single-family homes, indicating construction will gradually advance in coming months.

“It’s a matter of a giveback after an unsustainable pace of gains, rather than any germane deterioration,” Millan Mulraine, deputy head of U.S. research and strategy at TD Securities in New York, said before the report. “While the housing recovery remains on track, there hasn’t been the kind of momentum that was expected. It’s going to be a slow grind higher.”

For all of 2015, housing starts climbed 10.8 percent to 1.11 million, the strongest year for construction since 2007.

Estimates for December starts ranged from 1.11 million to 1.3 million. The previous month was revised from a 1.17 million pace.

Permits decreased 3.9 percent to a 1.23 million annualized rate last month, reflecting an 11.4 percent slump in applications for multifamily projects. Permits for one-family dwellings climbed an annualized 740,000 units, the highest level in eight years.

Beginning construction of single-family houses fell 3.3 percent to a 768,000 rate after surging 11 percent in November.

Work on multifamily homes, such as townhouses and apartment buildings, dropped 1 percent to an annual rate of 381,000. Data on these projects, which have led housing starts in recent years, can be volatile.

Three of four regions showed a decline in new home construction last month, led by a 12.4 percent slump in the Midwest and a 7.6 percent decline in the West.

The National Association of Home Builders/Wells Fargo index of homebuilder sentiment held at 60 in January, in line with the average for all of 2015, figures showed on Tuesday. Readings greater than 50 mean more respondents reported market conditions as good. The measure of buyer traffic fell and the six-month outlook cooled.

The progress of the job market will help determine the strength in housing this year. A jump in December payrolls capped the best back-to-back years for employment since 1998-99, one reason residential real-estate sales and construction also improved last year.

Demand is also expected to advance in the longer term as more young adults who delayed home ownership — in part due to the burden of student loans — improve their finances and begin to purchase entry-level homes in a bigger way.

Borrowing costs are staying low even after the Federal Reserve began raising its benchmark interest rate for the first time since 2006. The central bank has said further moves will be gradual.

Residential investment made a 0.27 percentage-point contribution to economic growth in the third quarter, when the economy grew at a 2 percent annualized rate.

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