Housing Starts Stumble to Start the Year

Home building activity dropped in January for the first time in six months. Is this the first sign of a slump?

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According to the latest data from the U.S. Census Bureau, overall housing starts in the U.S. dropped six percent from December 2020 to January 2021. Starts on single-unit housing also fell significantly, dropping 12.2 percent over that same time frame.

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January’s decline in housing starts marks the first time since August 2020 that both overall and single-unit housing starts have not increased month-over-month. Industry officials say that the slowdown was likely caused by the return of spiking lumber prices, which began to swell in January before reaching new record highs in mid-February.

“Concerns over higher lumber prices produced softness for the housing market amid solid buyer traffic at the start of the year,” said Chuck Fowke, chairman of the National Association of Home Builders. “With the cost of building materials rising at a rapid pace, the challenge for builders is to keep home prices at an affordable level for buyers even as the regulatory policy environment may become more challenging.”

While rising material costs and the drop in housing starts might seem to guarantee that housing is in for a slow period ahead, other indicators suggest that the industry might soon bounce back to higher levels of activity.

“It’s worth noting that the number of single-family homes permitted but not started construction jumped to 114,000 units in January,” said Robert Dietz, chief economist for the NAHB. “This is 9.6 percent higher than December and 28.1 percent higher than a year ago.”

The number of new privately-owned housing units authorized in permit-issuing places also increased 10.5 percent month-over-month and 22.5 percent year-over-year in January. This is noteworthy when trying to predict whether this housing mini-slump will last, as growth in the numbers of permits and authorizations naturally leads to higher numbers of housing starts in the months that follow.

But if lumber prices do not normalize soon, home builders may have no choice but to continue delaying work on houses they are otherwise authorized and permitted to build.