The housing market ended the year on a strong note as housing starts and permits rose unexpectedly in December, beating estimates of potential declines.
Most of the monthly gains came from sharp increases in multifamily homes, a sign of strong confidence among builders—which was in line with data from the National Association of Home Builders released Tuesday.
While high input costs and shortages of skilled workers remained challenging, the strong gains in starts and permits, which are proxies for housing supply, were encouraging as recent data pointed to an easing in supply chain bottlenecks.
Still, we expect a difficult January for both starts and permits as the omicron variant will put more pressure on the shortages of labor and materials.
The top-line figure for housing starts increased by 1.4% to 1.70 million in December on an annualized rate—the highest since March—rising for the third month in a row.
While the monthly percentage increase for November was revised down from 11.8% to 8.1%, it was because of an additional 50,000 residential starts coming from October’s revision.
That suggested an even more impressive growth in housing supply in the final quarter last year as builders continued to catch up with demand that has been elevated since the second half of 2020.
Single-family starts declined by 2.3% in December after jumping by 11.6% in the previous month, but multifamily starts were up by 10.6% on the month.
Building permits—a proxy for future construction—rose by 9.1% on the month to 1.87 million annualized rate—the highest since January.
Permits for both single-family and multifamily projects increased in December. But multifamily permits recorded a 21.9% jump on the month, while single-family permits rose by only 2%.
The takeaway
Despite the sharp increases in housing supply in the last quarter of the year, the imbalance between supply and demand for homes remains an issue.
There is still a lot of room left for builders to fill with new supply, despite rising mortgage rates that now stand at the highest level in nearly two years.
