US Housing Market Shows Mixed Signals in December

The US housing market exhibited mixed signals in December as housing starts declined, but building permits surged. According to the Commerce Department, housing starts in the US slumped by 4.3 percent to an annual rate of 1.460 million in December after a strong increase in November. This decline came after a 10.8 percent spike to a revised rate of 1.525 million in November. Despite the sequential drop, the annual rise in housing starts stood at 7.6 percent, indicating the sector’s resilience amid broader economic challenges.

In December, single-family housing starts tumbled by 8.6 percent to a rate of 1.027 million, following a 15.4 percent surge to a rate of 1.124 million in November. On the other hand, multi-family housing starts surged by 8.0 percent to a rate of 433,000 in December, showing a significant shift in demand patterns within the housing market.

Economists had anticipated housing starts to pull back by 8.6 percent to a rate of 1.426 million from the initially reported 1.560 million for the previous month. This shortfall was more moderate than expected, indicating that the housing market may be on a more stable trajectory than initially projected.

The housing market’s underlying dynamics were further evidenced by the 1.9 percent surge in building permits in December, reaching an annual rate of 1.495 million. This increase followed a 2.1 percent decline to a revised rate of 1.467 million in November. The pickup in building permits implies potential future growth in construction activity, suggesting that the demand for new builds remains robust despite the sequential decline in housing starts.

Homebuilder Confidence and Market Sentiment

Amid the mixed signals in the housing market, the NAHB/Wells Fargo Housing Market Index showed a significant improvement in U.S. homebuilder confidence in January. The index jumped to 44 from 37 in December, signaling a notable uptick in homebuilder sentiment. This increase indicates that homebuilders are increasingly optimistic about market conditions, potentially driven by favorable trends in building permits and the sustained demand for new construction.

The positive sentiment within the housing market was echoed by Nationwide Economist Daniel Vielhaber, who noted that “Housing starts fell in December but remained solid as demand for new builds maintains a high floor amid a persistent extreme shortage of housing inventory.” This statement underscores the resilience of the housing market, driven by strong demand despite supply-side challenges.

The US residential market ended the year on a mixed note with housing starts falling 4.3% in December, erasing nearly half of the 10.8% increase in November, as noted by BMO Economics Senior Economist Jay Hawkins. Despite this decline, the pickup in permits implies new construction will remain on an upswing in the near term, signaling a potential recovery in the housing market.

Analysts’ Outlook and Future Trends

Despite the sequential decline in housing starts, the construction activity remains close to pre-pandemic levels, indicating continued improvement in the housing market. The 7.6% increase in housing starts compared to December 2022 showcases the sector’s resilience and potential for sustained growth in the coming months.

Moreover, building permit rates came in higher than forecast in December, indicating future construction growth. This suggests that the housing market may experience a recovery in the near term, driven by the sustained demand for new builds and favorable trends in building permits.

Looking ahead, the housing market’s performance will likely be influenced by various factors such as mortgage rates, job growth, and overall economic conditions. Despite the recent decline in mortgage rates, the housing market is facing challenges related to affordability and job growth. However, the upward trend in homebuilder confidence and the sustained demand for new construction indicate a positive trajectory for the housing market in the coming months.

The information provided is for general informational purposes only and should not be considered as investment advice.