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The number of new homes which began construction hit a 13-year high last month, painting the housing market in a positive light. Low mortgage rates and continued growth in hiring contributed to the housing market gains. Residential starts rose 16.9% last month, well above estimates and reaching a 3-year high.

Key Takeaways

• Residential housing starts beat expectations of 1.375 million units, surging to 1.608 million.
• Starts for November were revised from 1.365 million to 1.375 million.
• The annual growth is less impressive, coming in at

Starts saw strong growth in December, although permits, which indicate future construction, fell 3.9% to 1.42 million. Residential construction contributed to both Q3 and Q4 growth for the first time since 2017. Demand has been driven by mortgage rates, which have sunk near a three-year low following interest rate cuts implemented by the Federal Reserve throughout 2019.

Housing is also spurred on by a healthy labor market. While hiring and wage growth have slowed, job creation remains above the minimum amount required to keep pace with the working-age population, and the labor market continues to fuel economic expansion in the US.

Housing Starts through the Roof best number in more than decade - My investment thesis based on Housing Renaissance

Total Housing
•+16.9% m/m(est -0.4%)
•+40.8% y/y

Single Family
•+11.2% m/m
•+32.0% y/y
Multifamily

•+29.6% month to month
•+74.6% year to year pic.twitter.com/7lcKkHwEJU

— Charles V Payne (@cvpayne) January 17, 2020

Construction of single-family homes rose 11.2% to the highest points since mid-2007, and permits for single-family homes sunk 0.5%. Multi-family family homes, a more volatile segment, rose 29.8%, the highest since 1986. Annually, however, this category saw reduced growth with an increase of 3.2% growth in 2020 following 3.9% the year before. US homebuilder sentiment saw the highest consecutive readings since 1999 in December and January, indicating a bright outlook for the coming year in terms of housing.

Expert Outlook

Senior CIBC economist Avery Shenfeld said “Housing has been building momentum in recent months on the back of lower mortgage rates, but nothing like this. We suspect that milder than usual weather in parts of the country normally more inclement in December was behind the monthly spike. Q1 should benefit nicely from a climb in residential construction spending, helping to offset some of the drag expected from aircraft manufacturing issues,” he said.

All four regions in the US saw gains, with the Midwest, South, and West posting the highest increases in housing starts since 2006. In the Northeast, gains were the highest since August 2019. 179,000 homes were authorized for building but not yet started last month, a reduction of 6.3% from the month before.

Market Reaction

Gold prices have risen since the release of the report. Spot gold last traded at $1,557.44/oz, up 0.34% with a high of $1,560.67/oz and a low of $1,549.62/oz. With little reaction to the upbeat news, it’s possible that traders have remained wary of the report, looking past the headline to the dip in permits for future construction.