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Housing starts in January shot up 18.6% after showing poor performance in previous months. The surge in housing starts is a strong indicator that the embattled housing market may finally be showing signs of life after reduced prices and mortgage rates increased affordability.

Key Takeaways

• Housing starts increased at the fastest pace in eight months with construction beginning on 18.6% more houses than the month before.
• The seasonally adjusted annual rate of housing starts is now at 1.23 million for January, according to the Commerce Department.
• Permits for new construction hit a nine-month high.

The annual construction rate has risen 18.6% from 1.04 million in December to 1.23 million in January, helping to offset concerns that the housing market is failing to tread water. The majority of new homes were single-family homes which saw the strongest build rate since May 2018 with a 25.1% increase, the biggest one-month gain since 1979. However, permits for single family-homes dipped 2.1%, the lowest since August 2017.

This suggests that the surge is slightly anomalous and is simply due to the first wave of market entrants who have been waiting for the right financial conditions to begin construction. While this makes it unlikely that next month will see the same growth, the fact remains that demand is finally increasing in the housing market.

Overall January housing starts were still below the 2018 average due to the weakness in apartment building. A major indicator of future market activity, construction permits, saw a 1.4% increase to a rate of 1.35 million, which points to an uptick in apartment-building on the way.

The more volatile category of multifamily homes of five or more units grew by 4% with an increase in permits of 4.8%. Friday’s report on January housing starts was delayed for two weeks due to the partial shutdown of the US government during that period.

Increased Demand

Lower borrowing costs and reduced home prices have contributed to demand and encouraging builders to produce more units. The labor market continues to carry other, weaker areas of the economy, supporting housing with wage gains that are finally begin to keep pace with increases in the price of homes.

Pending home sales also saw an unexpected rise in January and home builder outlook reportedly increased.

Three of four regions saw gains, with a significant 58.5% in the Northeast, the most since June 1017. 203,000 homes were authorized but not yet started in January, the most since May 2007 at around the time of the housing collapse. This also indicates the possibility of a strong uptick in the market.

Jan ‘19 US total #housing #starts were 1,230K (annualized). https://t.co/a0moOWD1Vf #Census pic.twitter.com/DgxWZdwE2S

— U.S. Census Bureau (@uscensusbureau) March 8, 2019

Margin for Error

It’s important to note that the government shutdown delays have made it difficult to calculate the exact start and completion date of responses in the report. Technically, the data in the report have a 90% margin of error, with a 90% chance that the housing starts figure was between an 8% drop and 45.2% gain. Housing data should normalize when the delayed reports catch up with the usual schedule of publication.

Market Reaction

Spot gold has shown little response to the news, continuing an upward trend seen earlier in the session. Spot gold is currently testing resistance around the $1,300 mark, last trading at $1,296.25/oz with a high of $1,300.53/oz and a low of $1,285.08/oz, up 1.24% on the day.