U.S. home building is showing signs of recovery in select areas with November’s home building report showing a pronounced increase in multi-family home building. However, single family home construction is in decline which points to a weakening housing market overall.
- Construction of single-family homes dropped to its lowest point in one and a half years in November.
- Housing starts increased 3.2% overall with a seasonally adjusted annual rate of 1.256 million units last month.
- October figures were revised to show a decline for that month.
The Commerce Department reported earlier today that housing starts fell in October as opposed to rising as was originally reported, with the true rate being 1.217 million units and not 1.228 million. Single family homes have now fallen for three consecutive months.
Building permits surpassed expectations of 1.225 million units with a reported 1.328 million units, largely influenced by the multi-family housing sector which is typically volatile. The increase marks a 5% increase for the month.
High Mortgage Rates
Higher mortgage rates continue to impact the housing market as well as a shortage of skilled workers and available land, both of which lead to reduced inventories. Inflation in the prices of housing has slowed but continues to outpace wage growth at this time which makes it difficult for first-time buyers to enter the market. The rate of 30-year fixed mortgages has risen 4.63% or 60 basis points in the last year with a fourth rate hike expected from the Federal Reserve this month.
Economists believe that home building has also declined in Q4, although this remains to be seen, with predictions that the housing market will continue to show weak performance throughout Q1 and Q2 of 2019 with more rate hikes on the horizon.
1-Unit Housing Starts Plunge 13.1% YoY As Fed Continues Tightening … The Noose https://t.co/YAw7Y6tpzF pic.twitter.com/5aOvaMhO9O
— Anthony Sanders (@AnthonyBSanders) December 18, 2018
Residential investments declined in the first three quarters of 2018, marking the longest continuous decline in that sector in almost ten years.
Decline in The Housing Market
Single-family home building has fallen 4.6% for the month, the lowest since May 2017, with a rate of 824,000 units in total. This sector is the largest in the entire housing market, pointing to an overall decline.
A survey yesterday showed single-family home builder confidence drop this month to a low not seen in over two years with builders stating that while consumer demand exists, rising home costs are preventing many buyers from making a purchase.
The South saw a jump of 6.8% in single-family home building last month, while the Northeast saw a 9.5% drop and the West saw a 24.4% drop, with a milder 3.2% drop in the Midwest.
Permits for single-family homes increased 0.1% in November to 848,000 units which may indicate some recovery in the coming months.
Meanwhile, starts for multi-family housing rose considerable with a 22.4% increase overall in November at 423,000 units, while permits for such homes rose 14.8% to 480,000 units.
Single-family completions in November dropped 5.4%, the lowest since August 2017. The stock of housing under construction rose 0.7% to 1.148 million units, with multi-family homes making up more than half of that inventory.
Expert Outlook
Aaron Terrazas, senior economist at Zillow, said “The residential construction market hit the pause button in 2018. Speculation has already begun as to whether the construction industry is a macroeconomic canary in the coalmine signaling a larger shift to come.”
“The relatively strong permits numbers suggest that home builders think the fall in sales will prove temporary, probably because much of it has been triggered by the two hurricanes and the wildfires, while mortgage demand has strengthened,” said Pantheon Macro’s Ian Shepherdson.
“In short, these data are consistent with our view that the underlying housing market is nothing like as weak as some of the recent data - notably, home sales and the NAHB survey - suggest. We expect both to rebound over the next few months, winter weather permitting.”
Market Reaction
Gold prices have remained relatively steady today with a high of $1,250.06/oz and a low of $1,248.65/oz and last trading at $1,248.73/oz, up 0.11% on the day. A decline in the housing market often correlates with a weakened dollar and consequentially, higher gold prices, and the potential upcoming rate hike could further impact the housing market before the year is out.