Bottom Line
Outlook
The key number in this release is almost always the single-family permits estimate since it is not influenced much by weather, has a small sampling error and is forward looking. Single-family permits in December jumped 8.3%, following a 4.5% November increase. They also posted solid increases across all four regions. Briefly, this was a good report, despite the drop in housing starts.
Single-family permits had flattened after July 2009, payback for the first-time homeowners' tax credit passed in February, 2009, which shifted housing starts and permits from 2010 and late 2009 into the first seven months of 2009. November's and December's solid increases in single-family permits suggests that the payback period is over, and that single-family starts should continue to make steady gains going forward. In 2010, job growth, low inventory levels of new homes (currently at their lowest point since May 1971), and improving household formation should result in sustained increases in housing starts.
A swing in weather patterns depressed housing starts in December. According to the National Oceanic and Atmospheric Administration (NOAA), November 2009 was the third-warmest and 18th-driest November in 115 years. As a result, some homes that would have been started in December were instead started in November. But December's weather was also unusual. According to NOAA, "the nationally averaged temperature was 3.2 degrees below normal, as several punches of arctic air dove deep into the United States." The South, which accounts for about half of all starts, experienced its ninth-coolest December. Nationally, December was also the 11th-wettest December on record.
Will weather pull the numbers back up in January? So far, with unusually cold weather in the South, and rain in California, the answer appears to be no. A bounce back in February, though, is likely.
Multi-family permits — the second-most important number in the report — rose from 120,000 to 145,000 — a solid increase that bears watching. Multi-family starts increased from 90,000 in November (annual rates) to 101,000 in December. Going forward, multi-family housing starts should start growing later this year — but only because new construction in this sector is near rock-bottom levels. The recovery will take two to three years.
