US housing starts fall, building permits near 13-year high

Washington

US homebuilding fell less than expected in January while permits surged to a near 13-year high, pointing to sustained housing market strength that could help keep the longest economic expansion in history on track.

Other data released on Wednesday showed producer prices increasing by the most in more than a year last month, boosted by rises in the cost of services such as healthcare and hotel accommodation.

The reports could support the US Federal Reserve's desire to keep interest rates unchanged at least through this year after lowering borrowing costs three times in 2019.

"The economy looks good with residential home building activity beating expectations and a little more producer price inflation, even if the data overstate how well the country is doing in terms of generating the growth and inflation the Fed wants to see," said Chris Rupkey, the chief economist at MUFG in New York.

Housing starts dropped 3.6 per cent to a seasonally adjusted annual rate of 1.567 million units last month, the Commerce Department said. That followed three straight monthly increases.

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Data for December was revised up to show homebuilding rising to a pace of 1.626 million units, the highest level since December 2006, instead of surging to a rate of 1.608 million units as previously reported.

Economists polled by Reuters had forecast housing starts falling to a pace of 1.425 million units in January.

Housing starts jumped 21.4 per cent on a year-on-year basis in January. An estimated 1.291 million housing units were started in 2019, up 3.3 per cent compared to 2018.

Building permits soared 9.2 per cent to a rate of 1.551 million units in January, the highest level since March 2007, lifted by gains in both single- and multi-family housing segments.

The housing market remains on solid footing, supported by the lowest mortgage rates in more than three years. Although housing accounts for about 3.1 per cent of gross domestic product, it has a giant footprint on the economy.

Housing market stability could help to keep the economic expansion, now in its 11th year, on course, amid risks from the coronavirus, slowing consumer spending and weak business investment.

Minutes of the Fed's Jan 28-29 meeting published on Wednesday showed policymakers "expected economic growth to continue at a moderate pace". The 30-year fixed mortgage rate is at an average of 3.47 per cent, the lowest since October 2016, according to data from mortgage finance agency Freddie Mac.

"Housing is proving to be a solid link in a cooling economy," said Nancy Vanden Houten, the lead US economist at Oxford Economics in New York. The housing report from the Commerce Department showed single-family homebuilding, which accounts for the largest share of the housing market, fell 5.9 per cent to a rate of 1.010 million units in January.

Single-family starts raced to a 1.073 million-unit pace in December, the highest level since June 2007. Single-family housing starts accelerated in the Northeast and West, but tumbled in the Midwest and the populous South.

Single-family housing building permits rose 6.4 per cent to a rate of 987,000 units in January, the highest level since June 2007.

Starts for the volatile multi-family housing segment rose 0.7 per cent to a rate of 557,000 units last month, with those for buildings with five or more units at levels last seen in July 1986. Permits for the construction of multi-family homes vaulted 14.6 per cent to a rate of 564,000 units, and those for buildings with five or more units hit their highest level since June 2015.

While housing completions dropped 3.3 per cent to a rate of 1.28 million units last month, the stock of homes under construction rose 1.3 per cent to 1.203 million units, the highest level since February 2007. This could help alleviate a shortage of homes for sale that is keeping home prices elevated.

Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to plug the inventory gap. REUTERS