Housing starts dropped unexpectedly again in November to 1.289 million on an annualized basis, continuing the downtrend that began in 2022.
The increase in starts from rebuilding in the South after the hurricanes was not enough to offset declines in the Midwest and the West.
But the downside surprise in housing starts seems to be temporary as building permits, a proxy for future starts, rose by a sharp 6.1% on the month. Permits increased in all regions to a total of 1.505 million, driven largely by multifamily projects, according to government data released Wednesday.
Still, the recent levels of starts and permits do not suggest enough future supply to meet the growing demand of American households to keep home prices under control.
The number of starts and permits remained below our long-term threshold of 1.7 million of new homes needed to stabilize home prices.
The silver lining in the recent months, the number of completions, also fell to a six-month low of 1.6 million annualized.
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Completions reached 1.7 million on average in the previous five months, enough to keep housing inflation in check. We should not expect completions to continue at that level.
While the housing component in the most recent consumer price index inflation report finally showed some material improvement, housing prices in the CPI report lagged real-time prices by 12 to 18 months.
If the supply of housing remains subdued while demand bounces back, prices might increase at a faster pace, adding new pressure on inflation down the road.
