Builders OK With January Housing Starts Decline

While homebuilding production dropped from December to January, a closer look at the numbers shows that things are off to a solid start in 2020.

house being built with rocks and gravel in the foreground archives/Getty Images

According to the latest numbers from the U.S. Census Bureau, in January 2020, builders across the country started construction on homes at a seasonally-adjusted rate of 1.57 million, a 3.6 percent drop from December. Residential construction starts saw a slightly larger dip, falling 5.9 percent over that same time period.

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On the surface, a decline in housing starts seems like a warning sign. But last December represented the tail end of a three month surge in homebuilding that saw homes going up at the fastest rate since the 2007 recession.

So the slight drop in production from December to January seems less worrisome and more a return to reasonable and expected homebuilding rates.

“While the solid pace for residential construction continues, favorable weather conditions may have accelerated production in the winter months,” said Danushka Nanayakkara-Skillington, an analyst for the National Association of Home Builders. “At the same time, the growth in permits is a harbinger that that market will continue to move forward in the coming months, even as builders grapple with supply-side issues like excessive regulations, labor shortages and rising material costs.”

This positive sentiment was echoed in the NAHB’s most recent Housing Market Index, a monthly survey that asks home builders to rate how they view the current conditions of the market and compiles a number score based on the responses. Any HMI score above 50 indicates that there are more builders who view market conditions as “good” than there are builders who view conditions as “poor”.

February’s HMI was 74. This is just one point down from January’s HMI, showing that the drop in production in the first month of the year had little impact on builder positivity.

NAHB Chairman Dean Mon, himself a home builder in New Jersey, said that he sees the consistency and steadiness of single-family housing starts in the last few months as a sign the housing market continues to recover from a slow start in the first half of 2019.

“Meanwhile, builder confidence remains solid as demand continues to pick up,” added Mon.