Housing Starts Hold Up for the Most Part in January

The last three months of 2014 saw a mini-explosion in single-family housing starts, so the focus of interest in today’s data was whether those preceding gains would be sustained in the new year. As you can see in the accompanying chart, the answer is that they were—mostly. Yes, single-family starts dropped 6.7% in January, but this comes off a 9.7% increase over the previous three months. And as you also can see in the chart, even the lower January level of starts remains noticeably above the prevailing levels of the previous two years.

After the plunge during the recession and then an upturn over 2011-13, single-family housing starts had held steady through late-2014. Since September 2014, starts have begun to trend higher again. Sure, the current level of starts is way below what it should be were household formation and homeownership proceeding at rates consistent with population growth. However, such demographic trends are still faltering, and homebuilding nevertheless appears to have begun to move higher again.

There are still some wrinkles to be ironed out of the picture. New-home sales have somewhat risen recently, but not yet enough to fully vindicate the late-2014 pop in starts (green line in chart). The same can be said of single-family permits (red line). Meanwhile, the late-2014 spurt in single-family homebuilding was partially offset by declines in multi-family homebuilding. So overall, housing is something of a three steps forward, two steps back story. Then again, this has been true of most of the US and global economies throughout the current expansion.

We’ll be more confident of the homebuilding uptrend when it has been sustained a few more months and when permits and new-home sales are up commensurately. Still, starts have behaved much better than we would have guessed a few months ago, and today’s decline does not significantly alter that fact.