The pace of new home construction declined sharply in January, mirroring the drop in the February NAHB / Wells Fargo Housing Market Index (HMI). Regional data and builder surveys suggest weather played a large role.
Following the ten point drop in the HMI to a level of 46, total housing starts declined 16% to a seasonally adjusted annualized rate of 880,000 in January per the Census Bureau and the Department of Housing and Urban Development. Single-family starts were down 16% and the production of homes in 5+ unit multifamily properties was lower by 13%.
These declines come after upward revisions to the December report, which was increased to a 1.048 million annual rate for total housing starts. The volatility of housing starts has increased since October as multiple factors affected the construction of new homes.
Regional data confirm that weather played a large role in the decline for January. The pace of midwest single-family starts (seasonally adjusted) declined 60% from December to January and was 50% lower compared to January 2013.
Permit data also suggest that recent declines in starts may be a temporary delay of planned housing construction given unseasonably cold temperatures in the eastern part of the country. In contrast to the 16% reduction in single-family starts in January, single-family permits were down only 1.3% for the month and were 4% higher year-over-year. In the weather impacted midwest, single-family permits were down only 3%.
That said, there are other headwinds affecting home builders that can produce a start-and-stop monthly impact on the otherwise improving trend for home construction. These factors include access to labor and developed lots, as well as recent increases in building material prices.
The January decline in single-family permits across all regions is likely an indicator of such non-weather related supply chain problems. That said, such challenges can be exacerbated by weather events that prevent construction crews from working or building materials from arriving at building sites. Weather events that last only a few days in a month can lead to such delays and disruptions.