U.S. Housing Starts Up, But Permits Down
This one is straight from the daily RBC Economic Update by RBC Economist Rishi Sondhi that is subscribe too. You too can subscribe to these as well as many other reports from the RBC Ecomonics team. They are useful for keeping an eye on the Canadian economy as well that of our American neighbours (or would that be neighbors?).
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Housing starts edged up 0.8% in January to an annualized 1.012 million units. December’s level was slightly downwardly revised to 1.004 million units (previous: 1.006 million). Market expectations had been for an increase of 0.4% from December’s initially reported level.
All of the weakness was concentrated in the historically more stable singles component which dropped 5.2% to an annualized 743,000 units. In contrast, the multiples component rose 22.3% to 269,000. Permits dropped 3% to an annualized 1.048 million units. They were down 7.1% in December. Regionally, weakness was concentrated in the south (down 2.9%) and the west (down 6.2%).
Although starts edged upwards slightly in January, they were still off 12.2% relative to their fourth-quarter average. Furthermore, the drop in building permits in January suggests that starts will decline further this month.
Given that inventories in the sector remain quite elevated, we expect that downward pressure on residential construction will continue. Our forecast is for residential construction to contract at a double-digit annualized pace in the first quarter and shave close to one percentage point off GDP growth.
The decline in the MBA purchase applications index in February coupled with another grim assessment of real estate activity in the most recent Beige Book support this view. Also, although the NAHB housing market index ticked up in February, it remains just off its all-time low. From a policy perspective, the housing recession story is a well-worn one and today’s largely as-expected data are unlikely to alter decision-making at the Fed.
