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Gold prices have ticked downward today despite negative housing market data which revealed that the rate of new US homes being built in December sunk to a two-year low.

Key Takeaways

• US housing starts dipped 11.2% to an annualized rate of 1.08 million after a downwardly revised rate 1.21 million the month before.
• The decline brings housing starts to a two-year low, below expectations which were already negative after last week’s mostly negative existing home sales report.
• Today’s report did, however, show that permits rose 0.3%, possibly indicating a rise in future construction.

The embattled US housing market continued to show concerning signs of weakness today with the housing starts data, with more and more evidence of a slowdown being produced as time goes on. The report on December housing starts was originally scheduled for release on January 17 but was delayed due to the partial shutdown of the US government.

Overall, the housing market is performing poorly despite relief in interest rates emerging during the last 5 months with the interest rate for a fixed 30-year mortgage dropping from 5% to 4.5% since November. The dip was expected to take the pressure off the market and allow new would-be buyers to enter the market, but this has not been demonstrated in the recent market reports.

Tariffs Elevating Building Costs

As well as interest rates being an obstacle of late, the ongoing US/China trade war has caused the price of building materials to rise, which also creates a steeper point of market entry due to elevated building costs.

 Due to the delayed release of the report, the December housing starts data contains updates not usually present in the initial release and should therefore be more accurate than usual.

Construction was flat in the Northeast and declined sharply in all other regions, dipping -13.2% in the Midwest, -6% in the South, and -26.3% in the West, the lowest level since 2015. Multi-dwelling projects saw the sharpest decline with a -20% dive in December vs. -6.7% for single family homes, although it’s worth noting that single family homes account for most of the housing market while multi-dwelling projects are typically more volatile.

Re: These lousy #housing starts figures, should anyone really be surprised? Monetary policymakers pursued policies that helped inflate home values at much faster rates than #incomes. For years. This was GREAT for asset/home owners ... but terrible for potential asset/home buyers

— Mike Larson (@RealMikeLarson) February 26, 2019

Yearly Increase – Rebound on the Way?

The report was not entirely negative. Annually, housing starts are still up from 2017, rising from 1.20 million to 1.25 million in the 12-month period ending December 2018. The 2017 decline was the first since 2010.

Perhaps more significantly, there was a 0.3% increase in the rate of permits which are, understandably, a leading indicator of future construction. The 0.3% to a rate of 1.33 million was above market expectations and points to the possibility of a rebound despite the current market conditions.

It could be the case that the impact of reducing the mortgage rates is simply taking longer than expected in a market which has been fraught with uncertainty. Buyers could be hesitant to enter the market in the midst of recent worldwide economic turbulence, but it’s possible that the market is regaining confidence slowly. Home builder sentiment has rebounded since December according to a survey carried out jointly by the National Association of Home Builders and Wells Fargo, also indicating that there may yet be hope for an imminent rebound. Today’s report also stated that 187,000 homes were authorized in December but not yet started, the most since 2007.

Market Reaction

Gold trimmed losses briefly but has ultimately continued to tick downward following the housing market report from the Census Bureau and Department of Housing and Urban Development in Washington.

Spot gold last traded at $1,326.69/oz, down -0.19% with a high of $1,330.10/oz and a low of $1,323.77/oz. Hovering at the low end of the range, it’s unclear whether the housing market data will do much to positively influence the trading price in today’s session, perhaps given the ambiguous nature of the report which shows poor past performance but indicates the potential for a recovery in the near future.