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Housing starts fall from November to December, but remain improved from 2012

New construction remains one of the primary facilitators of the housing market’s continued recovery, but the 9.8 percent month-over-month decline exhibited in December represented the most significant dip seen in six months.

U.S. housing starts fell nearly 10 percent from November to December of 2013 but did increase slightly on a year-over-year basis, according to recently released U.S. Census Bureau data.

New construction remains one of the primary facilitators of the housing market's continued recovery, but the 9.8 percent month-over-month decline exhibited in December represented the most significant dip seen in six months. Starts did grow 1.6 percent from December 2012, but the data indicates only tepid improvement throughout 2013, punctuated by a slowdown to close out the calendar year, HousingWire reported.

Census Bureau data revealed that there were 999,000 privately owned housing starts beginning in December, compared with a revised total of 1.07 million for November and approximately 983,000 in December 2012. For the year, estimated housing units exceeded the 2012 rate by 18 percent - a sign that inventory levels are headed back toward normal, if only gradually. Some of the December data may be reflective of weather that brought extreme cold to the Midwest and Northeast and adversely affected the December jobs report, with significant portions of the manufacturing and construction sectors reportedly being forced to cease operations for extended stretches.

Still room for growth 
Single-family housing starts were down 7 percent from November to December, from a revised figure of 717,000 units to 667,000. The December rate for building with five units or more hit 312,000 for the month.

"Construction is much farther below the long-term normal than home prices and sales volumes, which have largely recovered," said Jed Kolko, chief economist and vice president of analytics for real estate analysis firm Trulia. "Slow household formation and elevated vacancy rates explain why construction remains far below normal." 

Kolko also offered the caveat that monthly housing start comparisons tend to be subject to volatility, and that year-over-year gauges serve to better indicate the state and trajectory of the current marketplace.

Building permits for privately owned housing units also exhibited a month-to-month decline in December, posting an annual rate of 986,000 for the month, down 3 percent from the revised November figure of 1.02 million, but up 4 percent from the estimate of 943,000 units from December 2012. Permits for building single-family homes were granted at a rate of 618,000 units in December, down 4.8 percent from the previous month.

"Atypically adverse winter weather may have played a role in slippage for starts and permits for December," Econoday analysts acknowledged to HousingWire. "Starts and permits topped the completions pace of 0.744 million units in December. The positive gap between permits and completions indicates that construction activity in the housing sector is still positive but the level of permits suggests deceleration."

Housing completions concluded December at an annual adjusted rate of 744,000, down 10.8 percent from a revised estimate of 834,000 for November. That figure did, however, represent a 10.7 percent jump from December 2012's rate of 672,000.

Building the foundation
While it's difficult to make any sweeping determinations based on one month's data, there's no question that one of the housing market's primary concerns is a sustained influx of new supply. That's especially true in coastal metro areas like Boston, Los Angeles, New York, San Diego and San Francisco, where property value appreciation rates skyrocketed for much of 2013. Prices rose to pre-recession levels or higher in many neighborhoods, and with limited new inventory entering the markets, demand outpaced supply and only fed the trend further.

Construction gains have been sporadic throughout the year, and while cautious optimism reigns for 2014, the housing industry's ability to sustain itself hinges on more permits and more completions for new building projects. That wave of new supply could be vital to affordability for new homebuyers, as well, given the expectation that interest rates will rise in 2014 thanks to the Federal Reserve's decision to taper its quantitative easing program. In reducing its bond-buying rate from $85 billion to $75 billion per month, the Fed has opened the door - if only slightly - for the private mortgage market to compensate for the difference with raised interest.

The national rate of employment will continue to play a role in dictating the direction of the market, as well. If more jobs are added, particularly to the manufacturing and construction sectors, the Fed will feel more comfortable proceeding with its reduced stimulus pace. Unemployment fell from 7 percent to 6.7 percent in December, but the employers added only 74,000 new jobs - a far cry from the 240,000 added in November that helped trigger the decision to taper. Much of that slowdown has been attributed to seasonal aberrations - most notably in the form of the aforementioned weather-induced work stoppages - but in order for the housing market to truly operate on its own, jobs need to continue to be added and more homes must continually be built.