US home building fell again in January, marking five straight months of declines, even as mortgage rates moderated and inflation cooled.
Housing starts, a measure of new home construction, fell by 4.5% in January from December. That’s down 21.4% from a year ago, according to data released Thursday by the Census Bureau. Starts in January fell to a seasonally adjusted annual rate of 1.31 million, down from the revised December estimate of 1.37 million.
Housing starts had big drops in May and July last year, when spiking mortgage rates pushed many prospective home buyers to the sidelines. Starts bounced back slightly in August, but have been falling since then.
Single‐family housing starts in January also dropped, down 4.3% from the revised December figure.
With mortgage rates that have trended lower since November, builders have begun to feel more optimistic that conditions may improve in 2023. But a recent monster jobs report and inflation that isn’t cooling as quickly as most would like mean that inflation concerns remain, along with volatile mortgage rates.
Building permits, which track the number of new housing units granted permits, rose slightly in January, up 0.1% from the revised December rate, and were down 27.3% from a year ago. In January building permits were at a seasonally adjusted annual rate of 1.339 million.
Conditions still ‘poor,’ but builders are cautiously optimistic
The home building market slowed again last month with fewer new construction projects as mortgage rates were nearly double what they had been a year before, said Robert Frick, corporate economist at Navy Federal Credit Union.
“The future for home construction became a bit bleaker this month as data on inflation, jobs and retail sales foreshadow the Federal Reserve may hike its federal funds rate higher than was expected a month ago,” he said. “A higher fed funds rate could boost mortgage rates that have settled down to about 6% from peaking around 7% in November.”
But home builders report a slight improvement in confidence in the new construction market.
Two consecutive months of improved confidence by builders in a survey from the National Association of Home Builders has indicated there is some improvement in building activity, and provides some positive signs for the housing market heading into 2023.
“Conditions are still considered ‘poor’ overall, but the improvement signals that builders are feeling cautiously optimistic,” said Odeta Kushi, deputy chief economist at First American.
Kushi says it is important to look at the number of home completions, in addition to starts and permits.
Completed new construction housing was up in January, according to the Census Bureau, with housing completions at a seasonally adjusted annual rate of 1.406 million, up 1% from last month and up 12.8% from a year ago. Single‐family housing completions in January were up 4.4% from December at a rate of 1.04 million.
“Given the long-run housing shortage, more new homes are good, but more new completed homes are better,” said Kushi.