Economy

Housing Starts at Six Year High

December 19, 2013

Housing starts jumped 22.7 percent in November to 1,091,000, well above an annual revised October estimate of 889,000 for October and the highest level in six years. The rate for single family housing starts leapt 20.8 percent to 727,000 while the rate for multi-family units rose 26.8 percent to 354,000. The report by the Commerce Department included data for the past three months due to the delay caused by the government shutdown in October. September housing starts dropped 1.1 percent but climbed back up 1.8 percent in October.

The strength of November starts is good news for the economy and may have influenced the Federal Open Market Committee (FOMC) in their deliberations on Wednesday. The FOMC said in its Dec. 18 statement: “Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.”

In the space below is an interactive chart with total housing starts based on their 3 month moving average. You will need to be on the Steel Market Update website in order to see and interact with this chart.

{amchart id=”91″ Total Housing Starts 3MMA}

In essence, the FOMC is reducing its economic stimulus due to improvements in the job market and other positive economic indices like the renewed interest in housing construction. Trimming its bond purchases by $10 billion may lead to higher long-term borrowing interest rates. Interest rates for 30-year home loans have been growing this year with last week’s rate at 4.62 percent. Meanwhile, applications for loans fell 6 percent from the week before and 12 percent from the same period in 2012, according to the Mortgage Bankers Association. Analyst opinion, however, suggests the FOMC decision will not deter the renewed demand for housing.

Building permits, an indicator of future construction, were near a five year high at a seasonally adjusted annual rate of 1,007,000—3.1 percent below October but 7.9 percent above the Nov 2012 rate. The strong permit rate, which leads starts by 1-2 months, bodes well for continued strength in housing starts for December and early 2014.

Housing completions were at a seasonally adjusted annual rate of 823,000, just slightly below the 824,000 estimate in October and 21.6 percent above the November 2012 rate.