Implications: Home building weakened in January following a healthy end to 2023, with both housing starts and completions dropping sharply. While the data have been choppy, it had appeared that developers were finally finding their footing in what has been a challenging environment for sales, but January threw things for a loop. It is possible that colder than normal January temperatures were a factor, as well as unusually high precipitation, but the drop in starts was in every major region of the country and “heating-degree days,” a quantitative measure of national heating requirements when temperatures are below 65 degrees, was not unusually high. In other words, we see these data potentially signaling broader economic weakness, consistent with the drop in retail sales and decline in manufacturing production in January. Starts in January were the second lowest for any month since mid-2020, during the onset of COVID when lockdowns still prevailed in much of the country. Starts fell 14.8% in January, the largest single-month decline since April of 2020. Another recent theme is the split between single-family and multi-family development. Over the past year, the number of single-family starts is up 22.0% while multi-unit starts are down 36.8%. Building permits also fell short of consensus expectations in January, declining 1.5% to a 1.470 million annual rate. The decline was entirely due to permits for multi-unit homes (down 7.9% in January), as single-family permits rose 1.6%. While multi-unit permits have been trending down over the past year, permits for single-family homes have increased in each of the last twelve months. Meanwhile, housing completions fell in January to a 1.416 million annual rate. While we don’t see housing as a major driver of economic growth in the near term, we don’t expect a housing bust like the 2000s on the way, either. As the Fed eventually begins to cut rates, mortgage rates should trend lower as well, helping support housing later in 2024.
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