The U.S. Housing Market: Starts & Permits

The U.S. housing sector is a volatile beast, and the stock market heavily relies on its health to know how stable the economy will be in the coming months. Growth has been slowly recovering since the recession, but bit by bit, levels are returning to normal. Analysts are heavily focused on the volume of home purchases from Millennials, since this is a group heavily in debt and has been slow to get married and start families. One of the most important measures of this is the monthly report on housing starts and permits, which is published by the U.S. Census Bureau.

For the month of January, housing starts and permits proved to be softer-than-expected, declining by 3.8% to an annualized rate of 1.099 million starts, and permits down 0.2% to an annual rate of 1.202 million. The weakness in starts seems to be equally distributed between single-family homes (houses), which are down 3.9% over last month, and multi-family homes (apartments) down 3.7% over last month. Permits for single-family homes have declines by 1.6% to an annual rate of 720,000 and multi-family permits have actually increased by 2.1% over last month to an annualized rate of 482,000 units, and this also represents the strongest reading of the whole report.

Ultimately, multi-family homes are the center of strength for the broader housing market in the United States, with permits up 19.9% over last year and surpassed a very strong 9.6% year-over year gain for single-family home permits. Starts are lagging very far behind, but a lot of this had to do with the heavy winter weather that hit the East Coast in January. Starts have shown a year-over-year gain of 1.8% overall, and is a direct reflection of supply constraints in the construction sector, as well as tightness in the labor market.

Below is a chart showing the relationship between starts and permits in recent years. Ultimately the housing sector is not as strong as it should be, or has been, but the permit levels actually do point to some signs of strength. This is the first of a few reports that were affected by weather from January, and this is likely a trend that could intensify in the data from February.