Housing starts dropped 16 percent to an 880,000-unit pace in January as unseasonably cold weather continued to constrain construction activity. Building permits fell for the third straight month.
Housing Starts Drop, but Is Winter Weather the Only Culprit?
Housing starts posted its second monthly decline in January, falling 16 percent to an 880,000-unit pace. However, the previous month’s data was upwardly revised bringing the annual average in 2013 to 931 million units, which is a 19 percent annual increase. Once again, harsh winter conditions are likely the major culprit. Single-family housing starts fell 15.9 percent in January and multifamily starts were down 16.3 percent. However, with starts jumping 22.5 percent in November, the decline may also be a bit of payback for the sharp increase.
Despite the weak headline number, our forecast for 2014 is cautiously optimistic. One positive note in the monthly numbers is the upward revision to previous months’ data. In fact, November and December are now above the all-important 1-million unit mark. Monthly starts have not surpassed this key level since mid-2008. With weather and the seasonal adjustment process likely pulling the headline lower, we could see anothersoft print in February. Even if we see another downbeat month it does not mean the housing recovery has faltered. We continue to expect housing starts to improve on trend this year. However, the trend in permits and recent drop in sentiment could be pointing to some looming underlying trouble in the coming months.
Permits Show Weakness
Permits also painted a somewhat lackluster picture. Overall permits were down 5.4 percent in January with single-family and multifamily down on the month. Despite the recent weakness, single-family permits are up 16 percent in 2013 and multifamily permits were up more than 25 percent. While permits are seen as forward looking, we have found units under construction to be a better indicator in recent months, especially with weather conditions diluting the overall trend. Units under construction have shown fairly consistent monthly gains over the last year and are up about 27 percent with single-family units rising 18 percent and multifamily units up about 37 percent.
Homebuilder Sentiment Plunges
The NAHB/Wells Fargo housing market index dropped 10 points to 46, which is the lowest level since mid-2013. Although the weakness was broad-based, current sales saw the sharpest decline, plummeting 11 points to 51. Builders noted the drop was likely due to unusually severe weather conditions, but also cited a shortage in skilled labor and lots. Scarce lots and skilled workers have been a problem for some time and will likely have a larger impact on smaller builders who make up a larger share of the sentiment index. Buyer traffic is another indicator that bears watching, but we expect the flow to pick up during the homebuying season.
Wells Fargo