Weekly Economic Report

Weekly Economic Report 1.22.18


December Housing Starts

Housing starts decreased 8% m/m to a seasonally adjusted annual rate of 1.19 million units in December. The decline was driven by a 12% m/m decline in the single-family segment, while multi-family housing starts increased by 1% m/m in December. For the year, housing starts reached 1.2 million, up 2.4% from 2016.

The slow growth in total housing starts reflects different conditions in the apartment rental market and in the owner-occupied (or for sale) market. The apartment market, which accounts for most of multi-family housing starts, recovered earlier in the housing cycle, but has already peaked. In 2017, the number of new apartments started was down 10% y/y, pulling down growth in overall housing starts. The story in the single-family housing market is different. It is still recovering in 2017, increasing 9% y/y. But the pace of recovery remains disappointing compared to normal levels in the past. Historically, housing starts have averaged around 1.5 million units a year, or around 300,000 units above the 2017-level. In 2018, we expect single-family housing starts to increase by 10% to 920,000 units. We expect strong growth in the $250,000 – $300,000 price range to cater to entry-level buyers, and continued growth in $300,000 – $400,000 price range for move-up buyers. But we do not expect the increase in housing starts to be enough to meet rising demand. This will likely result in another year of strong home price growth.

The lack of new homes for sale has already forced homeowners to stay in the home for longer. Survey by the National Association of Realtors shows that homeowners are spending on average 9 years in a home, rising steadily over the past few years. According to Genworth’s First-Time Homebuyer Report, home sales to repeat buyers have been flat since 2013. Instead, homeowners are undertaking more remodeling projects on their homes. In 2017, remodeling spending was up 17% in inflation-adjusted terms. Homeowners often use cash-out refinancing or home equity loans to finance remodeling projects. This trend will likely continue in 2018 as home prices continue to move up.

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