Implications: Housing starts ended 2019 with a bang, posting the largest monthly gain since 2016 and absolutely crushing consensus expectations. At an annualized sales pace of 1.608 million, starts hit the highest level since 2006. For 2019 as a whole, builders started 1.298 million homes, a 3.9% increase versus 2018 and a tenth consecutive annual gain. Activity was broad-based in December as well, with every major region posting gains and both single-family and multi-unit construction rising to post-recession highs. Some of the surge in home building in December is surely weather-related, with unusually mild weather for the month in sections of the country often hit by colder winter temperatures. As a result, expect a drop in housing starts in January. However, we think home building will remain on the upward trend it's been in since 2011. Based, on fundamentals (population growth and scrappage) the US needs about 1.5 million homes to be started each year. Given how long it's taken to get back to that level, there's also some room for overshooting to make up for lost time. Note that not all the news in today's report was great. Building permits took a breather in December, falling 3.9% after hitting a post-recession high in November. The decline was due to both single-family and multi-unit properties. As a whole, permits rose 1.5% in 2019 versus 2018. In other recent housing news, the NAHB index, which measures sentiment among homebuilders fell one point to 75 in January after hitting a 20-year high of 76 in December. It's not hard to see why builders remain optimistic about the housing market. Mortgage rates have dropped roughly 110 basis points since the peak in late 2018 while wages continue to grow at a healthy pace, boosting affordability. Our outlook on housing hasn't changed: we continue to anticipate a rising trend in home building in the next few years.
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