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Economic & Housing Weekly Note

Single-Family Starts Jump as Existing Inventories Plummet

January 22, 2021

Key Takeaways:

  • Housing starts rose 5.8 percent in December to 1.67 million annualized units, according to the Census Bureau. The increase was driven entirely by single-family starts, which jumped 12.0 percent to 1.34 million, while multifamily starts dropped 13.6 percent to 331,000. For all of 2020, single-family starts came in at 1.00 million units, up 12.3 percent from 2019 and the first time starts have hit a million units since 2007. Meanwhile, multifamily starts in 2020 edged down 1.9 percent to 395,000. New single-family residential permits also rose strongly, climbing to the fastest pace since mid-2006. Multifamily permits ended the year on a more muted note, falling for the fourth time in five months.
  • The National Association of Home Builders/Wells Fargo Housing Market Index fell 3 points to 83 in January. Despite the decline, the survey remained near 90, the all-time high recorded in November. A reading of 100 indicates all builders view the single-family market as "good" rather than "poor." All three components - current sales, sales expectations, and foot traffic of prospective buyers - decreased modestly.
  • Existing home sales edged up a slight 0.7 percent in December to 6.67 million annualized units, according to the National Association of REALTORS®. For all of 2020, existing home sales totaled 5.64 million, a 5.6 percent increase from 2019. The number of homes for sale was 23.0 percent below December 2019, the largest annual decline since the beginning of 2013. The months’ supply fell to an astonishingly low 1.9 months. Between the end of the 2008 crisis and the beginning of the COVID-19 pandemic, the months’ supply had averaged 5.5 months.
  • Mortgage applications decreased 1.9 percent for the week ending January 15, according to the Mortgage Bankers Association. Refinance applications drove the decline, falling 4.7 percent. Purchase applications gained 2.7 percent and hit the highest level since 2008.
  • The average 30-year fixed mortgage rate decreased 2 basis points to 2.77 percent this week, according to Freddie Mac.
Forecast Impact:

Housing dominated data releases this week as we saw housing starts surpass our expectation at the end of 2020 and remain poised to show continued strength in 2021. While we will need to revise upward our starts forecast, the strength was in line with our expectation that construction in the coming months will be strong relative to the pace of sales. That said, the decline in home builder sentiment in January and the sharp drop in new home sales in November suggests that single-family starts may decelerate in the near-term from the current impressive pace. The demand for home purchases remained strong in mid-January, as purchase mortgage applications hit a 12-year high. Mortgage rates have risen slightly from the trough seen in early January, but they continue to be historically low, which should support mortgage demand. However, supply remains a key issue. Existing home sales were revised upward in November and posted a slight gain in December, versus our assumption of a modest pullback, which pushed the Q4 total modestly above our forecast. The real headline from the release came from the months’ supply of existing homes for sale, which fell to 1.9 months, the lowest level since the series began in 1999. With inventories this tight, we believe it is unlikely that existing home sales can continue to rise, and we maintain our forecast of a slowdown in existing sales throughout 2021.

Ricky Goyette
Economic and Strategic Research Group
January 22, 2020

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