By Mindy Tan
The pace of homebuilding rebounded in December and surpassed analyst estimates, driven by multi-family units.
Privately-owned housing starts rose 11.3 percent to a seasonally adjusted annual rate of 1.23 million compared with the revised November annual rate of 1.10 million, stated the U.S. Department of Housing and Urban Development in a release on Thursday.
The average estimate compiled by Bloomberg was 1.19 million.
This was entirely driven by the 53.9 percent jump in the annual rate for units in buildings with five units or more, to 417,000. Single-family housing starts, which account for the largest share of the residential housing market, dropped 4 percent to 795,000.
“Single-family starts have been above the pace implied by permits, while multi-family have been overshooting; now both are in line, more or less,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, stated in a report.
“We’re expecting no significant further increase in the overall numbers over the next few months, given the soft trend in mortgage applications,” he added.
The mix of construction has been generally shifting toward single-family building, wrote Brian Wesbury, chief economist at First Trust Advisors, in a report.
“When the housing recovery started,” he stated, “multi-family construction led the way. But the share of all housing starts that are multi-family appears to have peaked in 2015, when 35.7 percent of all starts were multi-family, the largest since the mid-1980s, when the last wave of Baby Boomers was growing up and moving to cities. In 2016, the multi-family share of starts fell to 32.9 percent.”
The shift to single-family units is a positive sign, as on average each single-family home contributes to GDP about twice the amount of a multi-family unit, said Wesbury. He added he expects housing starts to rise to about 1.5 million units per year based on population growth and “scrappage” of old homes.
Building permits for privately-owned housing units dipped 0.2 percent to a seasonally adjusted annualized rate of 1.21 million, below the revised November annualized rate of 1.212 million.
Single-family authorizations in December were at an annual rate of 817,000. This is a 4.7 percent increase above the revised November figure of 780,000. Authorization of units in buildings with five units or more were at an annual rate of 355,000 in December, a decrease of 10.1 percent from the revised November estimate of 395,000.
Neil Shankar, an economist at TD Economics, part of TD Bank Group, stated in a report that the continuing rise of single-family permitting for five consecutive months suggests that construction in that segment should improve in the coming months.
“Demand for single family homes will continue to increase alongside a tighter labor market, rising wages, and a rebound in household formation,” said Shankar. “While the recent spike in rates poses some downside risk to our outlook for housing demand and construction, these factors should provide enough of an offset to keep homebuilding on a positive course.”