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At 8:30 A.M. (EDT), the Department of Housing and Urban Development reported data on new residential construction for the month of December. At first blush, the data looked mixed, but further scrutiny revealed that progress in the housing sector still seems to be taking place.

Specifically, the report showed that housing starts in December came in at a seasonally adjusted annual rate of 999,000 homes. While the latest tally was 9.8% below the revised November rate of 1,107,000 units, it was still 1.6% above the comparable December 2012 figure. Meanwhile, building permits, which tend to be a more telling indicator of future construction activity, came in at a seasonally adjusted annual rate of 986,000. That figure was down 3.0% from the revised November estimate of 1.02 million units, but 4.6% ahead of the December, 2012 reading. For all of 2013, housing starts increased 18.3% to an average of 923,400 units, while building permits jump by 17.5%, to a mean of 974,700 units. We think this should lead to a nice year for homebuilding in 2014, as it normally takes six to nine months for a new home to be delivered from the time a contract is signed.

Turning back to the latest monthly snapshot, a closer examination showed that some bad weather throughout a good portion of the United States late in 2013 may have played a part in some of the month-to-month setback in December housing starts. Specifically, housing starts in the Northeast and the Midwest, two regions hurt by severely cold and, at times, snowy weather during December, were down 21.7% and 22.6% year over year, respectively. However, new construction in the South and the West, the nation’s two biggest and most important housing markets, advanced 6.0% and 26.3%, respectively, versus the prior-year figures. New residential construction in the West, which also saw a double-digit percentage increase in building permits, both on a sequential and a year-to-year basis, was an encouraging sign, as a big contribution comes from the state of California, where homes tend to  fetch higher prices.

All in all, the latest data on housing starts and building permits should be considered another positive development for the homebuilding industry. Residential construction seems to be on the rise after a brief lull last year in the wake of a run-up in mortgage rates. Too, increasing household formation and a tight supply of homes has been boosting homebuilding, which in turn is helping the labor market and generating tax revenues for the government. With the Federal Reserve still likely wedded to keeping interest rates low through at least the early stages of 2015, despite the expectations that bond-buying tapering should continue in the months ahead, we believe 2014 will be another solid, if not spectacular, year for the building industry.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.