Residential Slow Down "Sustained Softening," New Home Construction Dips

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US homebuilders started the season at a seasonally-adjusted 1.64 million in January, down 4% from the previous month, the US Census Board reported last week. Economists polled by MarketWatch expected a median pace of 1.69 housing starts and for building permits to come in at 1.75 million.

The story differs depending on one's location. In the Northeast, housing starts rose overall, but single-family starts fell by 26%. However, in the West, both total housing starts and multifamily starts rose by 15%. Starts declined in both the Midwest and the South.

A nationwide 7% increase for single-family created the overall uptick in housing starts. However, multifamily took a hit overall. In the Northeast, multifamily dropped 48% and single-family slowed.

Slows in work and supply chain issues caused by covid cases and inclement weather could have slowed housing starts.

The number of homes completed in January slowed. Still, the number of homes under construction rose, attributable to the backlog of construction projects that have been waiting all this time.

Looking ahead, Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote: "The housing market is set for a sustained softening over the next few months. Current activity is holding up, but that's normal at this point in the cycle because would-be buyers rush to lock-in the terms of the mortgage when rates rise. This just pulls forward activity, and leaves a void afterwards."

"The number of building permits, a leading indicator, is at the highest level since 2006," said Abbey Omodunbi, a senior economist with PNC, 1.31%. "An improving labor market, strong demographic trends and healthy consumer balance sheets will be positives for the housing market in 2022 but rising mortgage rates will soften demand, cooling price growth."

With uncertainty in the market due to supply chain and labor issues, a slowdown in house building starts continues to decrease.

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