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U.S. Housing Starts Drop, Building Permits Steady, Historical Recovery Awaits

Posted by Joseph Trevisani on Jan 18, 2018 12:36:44 PM

Construction of new homes in the U.S. slipped from a 13 month high in December as winter took hold in the Eastern half of the country while building permits were essentially unchanged concluding the best year for home building in a decade.

Groundbreaking on residences fell 8.2 percent in December to a 1.192 million annual pace from the revised 1.299 million unit rate the prior month. November's starts were the second highest since the recession, topped only by 1.328 million in October 2016. Economists in the Reuters survey had forecast 1.275 million.

Single family starts, the mainstay of the home industry, fell 11.8 percent to 836,000; multi-family starts rose 1.4 percent to 356,000.

Building permits, which are an analog for future construction, slipped slightly 0.1 percent, to 1.302 million annually; 1.290 million had been predicted.

The American home construction industry has recovered steadily if slowly from the implosion of the housing bubble of the prior decade and three year plunge in new construction. From a peak of 2.273 million units in January 2006, housing starts fell 79 percent, retreating for 40 months before bottoming in April 2009 at 478,000.

Despite the 10 year improvement in home construction, recovery is relative.

While 2017's 1.207 million starts were better than any year since the crash they were worse than any but a handful of single years in the past two generations.

In the 59 years since this statistic began in January 1959 only six years, 1966, 1975, 1981, 1982, 1990 and 1993 have seen fewer housing starts. In that period the U.S. population has grown more than 82 percent, from 177.83 million in July 1959 to 323.1 million in 2016.

Put another way, if last year’s starts had kept pace with the average of the five years at the start of the series, 1959-1963, 1.43 million, they would have been, when corrected for the gain in population, 2.60 million, 115 percent higher than they actually were.

Many factors affect the number of housing start in any one year , the most prominent being the cyclical nature of the housing industry, which has seen repeated booms and busts since the Second World War, and the changing demographics of the American population. But the huge discrepancy between the potential number of housing units needed and the actual number built is a reminder that the economic impact of the housing recovery still has a long way to go.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Thompson/Reuters

starts jan 18


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