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Home Buying and Selling

Why The Housing Starts Report Isn’t As Bad As It Seems

By bonnie | January 20, 2016
December's lower-than-expected numbers aren't enough to diminish the bigger trend, that is: last year's housing starts were the strongest in nearly a decade.

Compared to historical norms, new construction starts are 75% back to normal, which is down from 77% in November 2015 but still up from 70% in December 2014. Year-to-year, total starts are up 10.8% and, for buildings with five or more units, starts are up 12.5%. Given the tight inventory that we’ve seen in many housing markets across the country, today’s release is a positive sign for new housing starts.

The upward trend reflects upward price movements over the past year, which makes homebuilding less risky. Last year was the best year for housing starts in nearly a decade. In addition, the Federal Reserve’s decision to increase interest rates by 0.25% last month didn’t impact builder confidence in breaking ground on new homes. While starts in December 2015  are down from November 2015, monthly numbers are highly volatile so we can’t be confident of any meaningful impact of interest rates.Housing Starts 1:16

The larger year-to-year increase in starts with five or more units reflects greater demand from renter households, which is in-line with the trend in starts we’ve seen over the past few years. For prospective homebuyers, this is a positive sign that we expect some relief of tight inventory, especially in the Costly Coasts, where starts are up 26.8% in the Northeast and 13.4% in the West. Moreover, renters can continue to expect relief due to the surge in five-plus units.

Finally, we should be cautious regarding this month’s year-over-year and month-over-month numbers as the margin of error tells us that the actual number could be flat. We can, however, be confident in comparing the 2014 and 2015 totals.

Housing Starts Summary:

  • New housing starts in December were +6.4% year-over-year, and -2.5% month-over-month.
  • Year-to-year, the numbers were great: 2015 totals were up 10.8% from 2014 for total starts, and up 12.5% for starts with 5 or more units.
  • There was some regional variation in starts: the Northeast led the pack with +26.8% growth in 2015 over 2014 , followed by the West with 13.4% growth.