With the delayed December data now published, the pace of single-family starts declined for the fourth consecutive month as housing affordability concerns weighed on the home construction market at the end of 2018. However, home building posted gains in 2018 relative to 2017. Total single-family and apartment construction starts were up 3.6% for the year, according to the joint data release from the Census Bureau and HUD.
The December rate of single-family starts decreased 6.7% month-over-month to a seasonally adjusted annual rate of 758,000. The steady decline for the pace of single-family construction mirrors the notable weakness for the NAHB/Wells Fargo Housing Market Index (HMI), now registering a score of 62. Builders are concerned about housing affordability conditions due, in part, to increasing construction and regulatory costs. However, mortgage interest rate declines over recent months should provide some support for the market in the coming months, as indicated by recent stabilization in the HMI. Nonetheless, a 10-year low for housing affordability conditions may put a stop to the two-year trend for rising homeownership.
Despite the weak second half of the year, single-family starts were 2.8% higher relative to 2017. Single-family permits, a useful indicator of future construction activity, were down in December but registered a 4% gain for 2018.
Multifamily starts (2+ unit production) showed weakness in December, falling to a 356,000 annual rate. For the year as a whole, multifamily production registered a 5.5% gain for 2018, beating the NAHB forecast for a slight decline.
With respect to housing’s economic impact, 53% of homes under construction in December were multifamily (610,000). The current count of apartments under construction is flat compared to a year ago. In December, there were 534,000 single-family units under construction (a cycle high, despite recent weakness), a gain of more than 7% from this time in 2018.
Regional data show – on a total year basis – mixed conditions. Single-family construction was down 6% for the year in the Midwest. Single-family starts were up in the larger building regions of the South (2%) and the West (9%). Single-family construction was 3% higher in the Northeast (despite new home sales declines) due to relative strength in the not-for-sale, custom market in that region.