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Housing Construction Performed Well in November – Robert Hughes

Total housing starts rose to a 1.679 million annual rate in November from a 1.502 million pace in October, an 11.8 percent increase. From a year ago, total starts are up 8.3 percent. Total housing permits also rose in November, posting a 3.6 percent gain to 1.712 million in November from 1.653 million in October (see first chart). Total permits are up 0.9 percent from the November 2020 level.

Starts in the dominant single-family segment posted a rate of 1.173 million in November versus 1.054 million in October, a jump of 11.3 percent, but are still down 0.8 percent from a year ago. Single-family permits experienced a 2.7 percent rise to 1.103 million versus 1.074 million in October. Single-family starts and permits have pulled back from a peak around the start of the year but have posted solid gains over the last two months and suggest that housing demand may be getting some renewed support (see first chart).

Starts of multifamily structures with five or more units increased 12.1 percent to 491,000 and are up a robust 39.1 percent over the past year while starts for the two- to four-family-unit segment were up 50.0 percent at a 15,000-unit pace versus 10,000 in October.  Combined, multifamily starts were 12.9 percent to 506,000 in November and show a gain of 37.1 percent from a year ago.

Multifamily permits for the 5-or-more group rose 6.1 percent to 560,000 while permits for the two-to-four-unit category fell 3.9 percent to 49,000. Combined, multifamily permits were 609,000, up 5.2 percent for the month (see first chart) and 12.6 percent from a year ago.

Regionally, single-family permits were up in three regions: the West saw a 7.1 percent rise to 256,000 while the Midwest gained 5.3 to 140,000, and the South managed a modest 0.8 percent increase to 644,000. The Northeast was unchanged at 63,000 in November (see second chart).

Multifamily permits also had three regions with gains in November. The Northeast rose 24.2 percent to 82,000, the South gained 16.8 percent to 257,000, and the West added 1.6 percent to 195,000. On the downside, the Midwest fell 25.7 percent to 75,000 (see third chart).

The surge in housing demand that sent lumber prices soaring to a peak of around $1,686 per 1,000 board feet in May had largely reversed course by September, hitting a low of around $450 in mid-month. However, since the low, lumber prices have started to rise again, hitting $1,110 in mid-December (see fourth chart). The rebound in lumber costs will pressure profits at builders and may lead to more price increases for new homes. Similarly, copper prices, another significant input in new home construction, remain elevated, coming in at $9,215 per metric ton in mid-December (see fourth chart).

Meanwhile, the National Association of Home Builders’ Housing Market Index, a measure of homebuilder sentiment, ticked up for a fourth month in a row in December, to 84 from 83 in November, but remains below the all-time peak of 90 in November 2020 (see fourth chart). Overall sentiment remains relatively high, but labor issues and supply chain disruptions continue to be significant problems.

Two of the three components of the Housing Market Index rose in December. The current single-family sales index rose to 90 from 89 in the prior month and the traffic of prospective buyers index was up to 70 from 69 in November but the expected single-family sales index remained unchanged for the third month in a row at 84.

After a pullback in activity in the first three quarters of 2021, single-family activity looks to be on the rise once again. It may be that implementation of permanent remote working arrangements by some employees, along with low interest rates, may be providing continued support for housing.

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