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Housing Starts Unexpectedly Weaken But Permits Soar to Recovery High

Housing starts unexpectedly decline 4.1 percent but permits rise 0.7 percent to a new recovery high.
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Housing data from the Census Department, chart by Mish

Housing data from the Census Department, chart by Mish

Economists Expectations

  • The Bloomberg Econoday economists' consensus opinion was for housing permits to rise slightly from 1.702 million units, seasonally-adjusted annualized (SAAR) to 1.708 million units.
  • The Econoday consensus was for permits to decline from 1.873 million units SAAR to 1.760 million units. 

New Residential Construction Report

The Census Department New Residential Construction Report for January shows economists were way off the mark. 

Building Permits 

  • Privately‐owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 1,899,000. This is 0.7 percent above the revised December rate of 1,885,000 and is 0.8 percent above the January 2021 rate of 1,883,000. 
  • Single‐family authorizations in January were at a rate of 1,205,000; this is 6.8 percent above the revised December figure of 1,128,000. 
  • Authorizations of units in buildings with five units or more were at a rate of 629,000 in January. 

Housing Starts 

  • Privately‐owned housing starts in January were at a seasonally adjusted annual rate of 1,638,000. This is 4.1 percent below the revised December estimate of 1,708,000, but is 0.8 percent above the January 2021 rate of 1,625,000. 
  • Single‐family housing starts in January were at a rate of 1,116,000; this is 5.6 percent below the revised December figure of 1,182,000. 
  • The January rate for units in buildings with five units or more was 510,000. 

Housing Completions 

  • Privately‐owned housing completions in January were at a seasonally adjusted annual rate of 1,246,000. This is 5.2 percent below the revised December estimate of 1,315,000 and is 6.2 percent  below the January 2021 rate of 1,328,000. 
  • Single‐family housing completions in January were at a rate of 927,000; this is 7.3 percent below the revised December rate of 1,000,000. 
  • The January rate for units in buildings with five units or more was 309,000.  

Long Term Picture

Housing data from the Census Department, chart by Mish

Housing data from the Census Department, chart by Mish

Completion Gap 

Note the huge gap between starts and completions. 

Blame this on shortages of materials and labor, and also on prices, especially lumber. 

Those delaying, expecting or hoping the price of lumber would continue to fall have had those hopes dashed.

I expect that completion gap will close, with starts plunging as mortgage rates climb, the economy heads into recession, and completions finish. 

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Look at the action in 2006 for what's likely, just not on the same scale as before.

Lumber Hopes Dashed

Lumber futures chart courtesy of Nasdaq annotations by Mish.

Lumber futures chart courtesy of Nasdaq annotations by Mish.

I discussed lumber prices, and absurd US tariffs on Canadian lumber, doubled by President Biden in Paul Krugman's Blatant Hypocrisy on Trade Deficits and Trump's Futile Trade Wars

Trump started a trade war with China but Biden did nothing about it. Far worse, Biden escalated Trump's trade war with Canada, the United States largest trading partner, when home prices are going through the roof.

Ironically, the Washington Post noted the United States only produces about 70 percent of the lumber it needs. The rest is imported, tariffs or not. Is this crazy or what?

Surprise, Surprise?!

There should be no surprise in declining starts. Home prices have soared out of sight and interest rates are climbing. 

The real surprise is the jump in permits. 

Many economists believe permits are a leading indicator of economic activity. 

I am not in that group. Rather, permits are a leading indicator of homebuilder expectations, not consumer demand. 

Why builders expect buyers will show up at record recovery rates with interest rates soaring, the stock market tanking, prices rising, and the Fed draining liquidity is the mystery. 

This post originated on MishTalk.Com

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