Power & Market

Single-Family Housing Starts Drop by Most Since 1990

Single-Family Housing Starts Drop by Most Since 1990
Power & Market Ryan McMaken

Housing starts usually fall from November to December. It's something that happens seasonally. This year, from November to December, housing starts for single-family houses dropped by 21.6 percent. That's the largest drop for the period since starts dropped 21.4 percent in 1990 — so it's a 27-year low.

The drop is larger in single-family homes than in all housing units over all. For all units, the November-December drop is only at a five-year low. Back in 1990, the drop for the period was 29 percent:

Does this indicate new weakness in housing markets? 

Using the seasonally adjusted data — I'm not using adjusted data above — NBC reports that "US housing starts down sharply on drop in single-family units" and notes December numbers "fell more than expected":

Home building increased 2.4 percent to 1.202 million units in 2017, the highest level since 2007. December's moderation in homebuilding is likely to be temporary amid strong demand for housing that is being driven by a robust labor market.

Builders, however, continue to struggle with labor and land shortages as well as more expensive lumber. A survey on Wednesday showed confidence among homebuilders slipping from an 18-year high in January. Builders expected a dip in buyer traffic and sales over the next six months.

The article mentions "more expensive lumber" but politely doesn't mention that lumber is more expensive partly due to new tariffs slapped on Canadian lumber by the Trump administration. 

There are any number of factors that go into housing starts, but if the supply of lumber is being artificially constrained, that means producers will have to build with more expensive materials, so houses will likely be more expensive. When homes are more expensive, fewer of them sell, and housing starts start to decline. 

On top of this, builders are facing slowly-increasing interest rates, which will also put downward pressure on home production. 

The NBC writer is clearly optimistic, although it's worth noting that during four of the last six months, the year-over-year change in housing starts has been negative (including all housing units). There's clearly a downward trend in growth since 2012. 

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