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Total
housing starts retreated
for a second month in January, to a seasonally adjusted and annualized rate (
SAAR)
of 880,000 units. That was 168,000 fewer units (-16.3 percent) than December’s upwardly
revised 1.048 million units, and more than 20 percent below November’s peak of
1.101 million units. The single-family component contributed nearly two-thirds
of the fall-off (-108,000 units, or -16.0 percent); the multi-family component
declined by 60,000 units (-16.3 percent).
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With
January’s drop, the year-over-year percentage change in total starts fell back
nearly to 0 percent. Single-family starts were 3.0 percent below January 2012’s
levels; the multi-family component was still “in the black” with +8.3 percent.
Analysts
have been debating the degree to which January’s bad weather contributed to starts’
poor showing. In our own opinion, the verdict is unclear. The Northeast, which
was certainly impacted by bad weather, saw starts jump on both SA and NSA
bases. The Midwest and South declined, as might be expected. However, bad weather
does not explain the drop in both SA and NSA starts in the West (much of which
was unseasonably warm or dry in January).
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Completions
rose modestly (+36,000 units, or 4.6 percent) in
January, to 814,000 units SAAR. The increase was about evenly split between the
single- and multi-family components (respectively, 17,000 and 19,000 units).
Total completions were 13.1 percent above year-earlier levels.
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The
most troubling aspect of the Census Bureau’s report came from residential
permits. Total permits declined by 54,000 units (-5.4 percent) SAAR
in January. The vast majority of the decline occurred in the multi-family
component (-46,000 units, or 12.1 percent); single-family permits fell by 8,000
units (-1.3 percent).
Although
some blamed the weather for the poor showing in permits, we think that makes
little sense. First of all, the biggest drop -- in both the SA and NSA data, and
whether on an absolute or percentage basis -- occurred in the comparatively
balmy West. Second, permits typically correspond to activity that will occur
two or more months in the future. Just because January’s weather may have been
unduly inclement does not mean builders expect those adverse conditions to continue.
Third,
the rate of growth in permits has been trending down on a year-over-year
percentage change basis since late 2012. As of January, permits were
essentially unchanged relative to a year earlier. This trend is most readily
apparent in the recent erosion of builder confidence. The
National
Association of Home Builders’ confidence index plummeted by 10 points --
the largest monthly drop in the survey’s history -- into negative sentiment
territory during February.
Rather
than blaming the weather, we think a more plausible explanation is the
construction industry got ahead of itself in late 2013 and needs to take a
breather.
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The foregoing comments represent the
general economic views and analysis of Delphi Advisors,
and are provided solely for the purpose of information, instruction and
discourse. They do not constitute a solicitation or recommendation regarding
any investment.
