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The pace of homebuilding moderated slightly in December, with housing starts declining by 30k units (annualized) to 1,149k. The headline number came in considerably weaker than market expectations, which called for a 1,200k new units. However, revisions to November data boosted single-family starts at the expense of the multi-family construction, leaving the overall tally relatively unchanged (+6k to 1,179k).
Most of the monthly decline was concentrated the single-family sector (-26k), while multi-family construction slowed only slightly (-4k).
Following an outsized (+121k) gain in the previous month, building permits backtracked in December, declining by 50k units to 1,232k. Despite the decline, permit issuance was still above of consensus expectation for 1,200k permits. The pullback was entirely due to decline in the volatile multi-family sector (-63k), while single-family permits rose for the third consecutive month (+13k) to their highest level in eight years.
The pace of new residential construction has picked up in the Northeast (+32k), but softened in the Midwest (-21k), West (-21k) and South (-20k).
The data is unlikely to cheer the downbeat market mood, as both new construction and permit issuance pulled back in December. Together with a sizeable decline in existing home sales in November, weaker pace of new residential construction at the end of the year does not bode well for Q4 residential investment, and consequently GDP growth.
That being said, the disappointing print in December comes on the heels of large gain in the prior month, and is unlikely to mark a beginning of a trend. Positive revisions to single-family starts in November and consistent gains in single-family permits were the bright spots in a report, suggesting that single-family construction continues to gain traction.
Looking beyond monthly performance, U.S. homebuilders continued to make gradual progress in 2015. For the year as a whole, housing starts have averaged 1107k - up 10.6% compared to their level a year ago. Homebuilding was also more balanced since it was less skewed to multi-family construction than in the prior years. Single-family starts rose by 10.3% last year - only a touch weaker than 11.3% gain in the multi-family segment.
"This modest but positive momentum is expected to continue this year, as robust job creation, improved household formations and still-low interest rates continue to support demand for housing. This view is also shared by home builders, with the NAHB confidence index remaining at an elevated level. Another trend that bodes well for homebuilders is the fact that sales of new homes have been slowly gaining market share as low inventory of existing houses on the market draws buyers to newly-built homes", notes TD Economics.
