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First Cut: Housing starts in December disappoint, but permits issued suggest decline will be short-lived

Starts of new homes in December fell 11.2% to 1.078 million units (SAAR) from November and were off 10.9% from December 2018. This was the lowest since 1.064 million units in September 2016. Starts finished 2018 on a decidedly down note. Starts for single-family units declined 6.7% in December to 758,000, and the more volatile multi-unit sector plunged 20.4%. Across regions, the Northeast was flat while the West was down 26.3%, the Midwest was down 13.2%, and the South was down 6.0%. There may be some atypical movements in the numbers after homes needed to be rebuilt from the ground up starting in October and November after Hurricanes Michael and Florence, and wildfires in California. However, the general sluggishness in the housing market evident in late summer may also have contributed to decisions to hold off on construction.

The data is relatively old as the Census Bureau continues to issue numbers delayed by the 35-day partial government shutdown that began in late December and ran through most of January. The release data for the January data on starts and permits was not announced with this report. However, the December numbers will provide some late data to help flesh out expectations for growth in the fourth quarter along with data on trade, inventories, and orders for factory goods before the release of the combined advance and second estimates of fourth quarter GDP at 8:30 ET on Thursday.

Permits issued in December suggest that the drop off in starts may be short-lived. Although the up 0.3% month-over-month and up 0.5% year-over-year seem meager, the 1.326 million units in December are still on trend with the past year. Admittedly, that demand was concentrated in the multi-unit sector which rose 4.9% to 497,000 rather than the single-family units which were down 2.2% to 829,000. Nevertheless, single family permits were only the lowest since 827,000 in August which it first became evident that the housing sector was losing momentum. The recent uptick in the NAHB/Wells Fargo Housing Market Index was to 62 in February after rising to 58 in January from 56 in December. Builders are likely more optimistic for good reason.



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