U.S. homebuilding rises in January, permits rise above expectations

U.S. homebuilding rose in January following a lull recorded in December. Homebuilders broke ground on 1,326k new homes, a bit ahead of market expectations, with the figure coming atop an upward revision in December’s tally, noted TD Economics. Permits also recorded an above expected figure of 7.4 percent rise on the month.

Both single and multifamily starts recorded gains. The more volatile multifamily segment saw building rise 24 percent to 449k, the highest level since December 2016. Meanwhile, homebuilding in the single family segment rose 3.7 percent to 877k, following a 10.6 percent decline in December.

Building permits grew a strong 7.4 percent to 1,396k in January, reaching a new post-recession high. The increase was driven totally by the multi-family segment. Single family permits dropped a bit following a period of strength in the past four months of 2017. Region wise, the strength in permits was focused in the South and West, both regions attaining a post-recession high.

All regions, except for the Midwest, recorded a rise to the beginning of the year. Starts in the Northeast rose 45 percent, the West rose 10.7 percent and the South rose 9.4 percent. In the Midwest, starts came in subdued and have been on a weakening trend in the past year.

The housing starts tally in January is the highest level in over a year. And indications are that there is still momentum building, as the number of housing starts authorized, but yet started, reached a post-crisis high, noted TD Economics in a research report.

However, there are some clouds in the near-term housing outlook. The alterations to the mortgage interest deduction and the state and local tax deduction as part of the Tax Cuts and Jobs Act in December would affect demand housing in higher-priced and higher-taxed regions. The additional uncertain might have resulted in a slight pullback in builder sentiment in January, which was in February. That uncertainty contributes to the challenge of a contraction pool of construction workers, and increasing mortgage rates. All these factors are likely to put downward pressure on homebuilding, stated TD Economics.

“Positive fundamentals such as a healthy labor market and accelerating wages will support demand, while tight inventories and rising prices will incentivize new homebuilding. As such, we expect residential investment to edge higher this year, albeit only modestly, led by particular strength in the single family segment”, added TD Economics.

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