A Sharp Increase in January Housing Permits Defies Predictions

Residential construction data was mixed at the kick-off of the new year. Permits increased significantly while both housing starts and completions pulled back from December numbers.

The U.S. Census Bureau and Department of Housing and Urban development reported that permits for residential construction were issued in January at a seasonally adjusted annual rate of 1,551,000. This is 9.2 percent higher than the December estimate of 1,420,000, revised from the 1,416,000 permitting rate originally reported. The uptick in permitting during January as well as in the fourth quarter of last year has boosted the rate 17.9 percent higher than in January 2019.

Permits were substantially higher than even the most optimistic predictions from analysts polled by Econoday. They forecast results in a range from 1,420,000 to 1,470,000. Their consensus was 1,453,000.

Permits for single-family homes rose 6.4 percent to an adjusted rate of 987,000 compared to 921,000 (revised from 916,000) in December, and 20.2 percent higher than a year earlier. Multifamily permits increased by 15.2 percent month-over-month and 16.0 percent on an annual basis to 522,000 units.

On a non-adjusted basis, permits were issued for 113,000 residential units in January, 70,400 of which were single-family. The December numbers were 107,300 and 63,000 respectively.

Permitting was up in all four regions on both a monthly and an annual basis. The Northeast was strongest with gains of 34.6 percent compared both to December and to January 2019. The Midwest had increases of 8.2 percent for the month and 20.3 percent year-over-year. There were increases in the South of 8.0 percent and 14.3 percent for the two periods and the West was up 3.1 percent and 16.7 percent.

Housing starts finished off 2019 in spectacular fashion, rising 3.2 percent in November and 16.9 percent in December to the highest monthly rate for starts since December 2006. They had been expected to pull back in January, and they did, to an annual rate of 1,567,000. This was down 3.6 percent from the December's 1,626,000 units which was a revision from the 1,609,000 units originally reported. This still leaves the rate of starts up 21.4 percent compared to the January 2019 rate.

Despite the pullback, starts still beat out expectations by a wide margin. Analysts had been expecting them to range between 1,350,000 and 1,480,000. Their consensus was 1,420,000.

Single-family starts were down 5.9 percent to an annual rate of 1,010,000 compared to 1,073,000 (revised from 1,055,000) in December and 4.6 percent higher than the same month in 2019. Multifamily starts rose 3.0 percent to a 547,000-unit annual rate, 77.6 percent higher year-over-year.

On an unadjusted basis, there were 109,100 housing starts during the month compared to 109,700 in December. Single-family starts declined from 69,400 to 68,600.

Housing starts jumped 31.9 percent in the Northeast compared to December and were 23.6 percent higher year-over-year. In the Midwest starts declined by 25.9 percent, remaining 27.7 percent higher on an annual basis. The South saw a 5.4 percent decline for the month but a 9.1 percent annual gain. The West had increases of 1.2 percent and 47.1 percent from the two earlier periods.

Lawrence Yun, chief economist for the National Association of Realtors, saw the glass more than half full in the January report. He said, "The latest month's decline in housing starts is nothing to be concerned about. This housing data is quite jumpy. What is important is the trend line, which is clearly on an upward path. Higher housing permit issuances are also a positive indicator for even greater production in the months ahead.

Housing starts of 1.57 million units (annualized rate) in January following 1.63 million in December marks the only two months in over a decade where activity has been above the historical average of 1.5 million a year. More construction will mean more housing inventory for consumers in the later months of this year. Spring months could still be quite tough for buyers, since it takes time to convert housing starts into actual housing completions. As trade-up buyers move into these new completed homes in the near future, their existing homes will be released onto the market."   

Housing completions dropped 3.3 percent to 1,280,000 units from a revised 1,323,000 units in December (those completions were originally estimated at 1,277,000) and were 1.5 percent higher than in January 2019. Single-family completions decline by 3.5 percent for the month and 4.9 percent for the year to a rate of 877,000. Multifamily completions dipped 2.2 percent but remained 18.2 percent higher than a year earlier at a rate of 397,000 units.

Completions fell substantially on an unadjusted basis, dropping from 124,200 in December to 88,700 in January. The same was true of single-family completions which fell from 88,000 to 60,800 units, to the lowest level since February 2019.

Homes were completed in the Northeast at a rate 50.5 percent lower than the prior month and 16.3 percent below the year-earlier rate. Completions in the Midwest were up 34.3 percent both for the month and on an annual basis. They fell 9.1 percent and 4.7 percent in the South compared to the two earlier periods and were 22.2 percent higher for the month in the West and 5.0 percent higher year-over-year.

At the end of the reporting period there were 1,203,000 housing units under construction, and 177,000 outstanding permits. Of those under construction 538,000 were single-family units as were 85000 of the permits.