Implications: After booming in November, home builders pulled back on new construction in December, starting homes at a 999,000 annual rate. Still, even with the pullback, home building beat consensus expectations and was the third best month since the recovery started. In other words, the housing recovery is still intact. Some analysts will point out that starts are up only 1.6% versus December 2012, but that month in 2012 was unusually strong, making it a tough month against which to compare December 2013. Here's a better comparison: In all of 2013, builders started 928,000 homes, up 18.4% versus 2012. As the charts to the right show, housing is clearly improving. The trend remains upward for both single-family and multi-family starts despite recent volatility. Those who are looking for signs of a slowdown will jump on the previous few months' volatility and the weather-induced pattern. But we believe this is a mistake. Overall, the underlying trends for home building continue to rise and should remain in that mode for at least the next couple of years. The total number of homes under construction (started, but not yet finished) is up 28.3% from a year ago. Based on population growth and "scrappage," housing starts will eventually rise to about 1.5 million units per year (probably by 2015). This is the level of construction that keeps the number of homes stable relative to the US population. Most of these homes will be owner-occupied but a large share will also be occupied by renters, which explains why multi-family construction has rebounded more sharply than the single-family sector over the past few years. Housing permits declined 3% in December, all due to single-family homes. Again, don't be distracted by volatility from month to month. The trends and housing fundamentals point to further housing gains in the years ahead.
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Posted on Friday, January 17, 2014 @ 11:31 AM
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