Housing Starts: Pressure On But Holding Together
The YoY plunge in starts is old news but homes under construction is holding up and keeps economic activity solid enough for now.
The January 2023 housing starts numbers did not bring much new to the story line with completions rolling on and houses under construction still running at historically high levels even if off from the peaks.
Starts were down by -21.4% YoY and down by -4.5% sequentially vs revised Dec 2022 numbers. Total permits were static at down -0.1% sequentially even if down ugly YoY by -27.3%. Single family permits were down a bit more from Dec 2022 at -1.8%.
The chart above tracks the massive single-family sector, but multifamily starts (5+ units) also softened again this month while multifamily permits ticked higher sequentially off of two straight softer months for permits. The multifamily supply factor ties both into the bigger demand picture but also reflects on the economics of new projects with rates high and rent projections vulnerable from here.
Overall, we don’t see this latest round of stats as telling any new stories. We looked at a range of homebuilder earnings recently in one of our weeklies (see Footnotes and Flashbacks: Week Ending Feb 3, 2023), and the builders have shown outstanding discipline in managing inventory this cycle as they shifted their strategies through a higher mix of options and incentives to mitigate the downside risk. The equity markets have also cast a positive vote in endorsing their execution.
The Houses Under Construction (not seasonally adjusted) are also lower sequentially outright but down by only -4.3% YoY on a seasonally adjusted basis. As we discussed last month (see Market Menagerie: Home Starts, Permits, Construction Dec 2022 1-19-23), the activity factor supports the economic signals in the broader market given the backlogs and sustained buzz along the supplier chain from materials to suppliers to appliances. The test will come in the spring as more visibility on rates flows into the homebuying decision maker.