The numbers: American construction companies began building homes at a seasonally adjusted annual rate of 1.67 million in December, representing a 5.8% increase over the previous month, the US Census Bureau reported on Thursday.
Licensing for new homes took place at an annual rate with a seasonal adjustment of 1.71 million, 4.5% above November.
Compared to December 2019, housing starts grew by 5%, while licenses increased by 17%. It was the beginning of the highest level housing and the building permits reached since 2006.
Both numbers were above analysts’ expectations, reflecting growth in the single family sector. Economists polled by MarketWatch expected home construction to begin at a rate of 1.56 million and construction permits to start at 1.61 million.
What happened: The growth in the single family sector drove the increase both in the beginning of housing and in building permits. On a monthly basis, permits for a single family increased by 12%, while permits for a single family increased by 7.8%. Comparatively, new construction in multifamily buildings fell by 15.2% between November and December, while multifamily licenses for buildings with five or more units fell by 2%. Duplex, triplex and quadplex licenses dropped 11.5%.
In regional terms, all parts of the country registered an increase in licensed activity, except the Northeast, where it fell by 7.2%. Although even in the Northeast, single family leave increased monthly.
Likewise, the Northeast was the only region that registered a decline in the beginning of housing – both in general and in the single-family segment. The Midwest had the highest growth at the beginning of housing, with an increase of 32%.
The big picture: Demand among buyers may be cooling due to high house prices and shortages, but it remains high compared to last year. This gives builders “a strong incentive to continue building,” said Danielle Hale, chief economist at Realtor.com.
Overall, housing starts for 2020 have increased by almost 12% compared to 2019, despite the slowdown last spring triggered by the pandemic. Builders ‘optimism may be decreasing slightly in light of the slowdown in buyers’ pedestrian traffic and rising costs associated with the purchase of land and materials. But the underlying need for new homes still exists, which should keep the construction industry busy for some time.
What they are saying: “New mortgage orders are also going up again, perhaps to overcome higher interest rates. Despite the slow population growth, residential construction remains well supported by (so far) low mortgage rates, record resale listings and the migration of teleworkers to the suburbs, ”wrote Michael Gregory, deputy chief economist at BMO Capital Markets in a research note.
“Housing initiations recovered and were at the strongest pace in over 14 years. Incredible, considering the slowdown related to COVID in the spring. There are not enough houses in this country for everyone, and we need a wave of lasting construction to meet demand, ”said Holden Lewis, a home and mortgage specialist on the personal finance website NerdWallet.