02/26/2019

U.S. homebuilding tumbled to a more than two-year low in December as construction of both single and multi-family housing declined, the latest indication that the economy lost momentum in the fourth quarter.

Other details of the report from the Commerce Department on Tuesday were also downbeat and suggested that the housing market could remain sluggish for a while despite an easing in mortgage rates. Housing completions dropped to a more than one-year low in December and while building permits increased, they were driven by the volatile multi-family housing segment.

Housing starts dropped 11.2 percent to a seasonally adjusted annual rate of 1.078 million units last month, the weakest reading since September 2016. Data for November was revised down to show starts at a 1.214 million unit rate instead of the previously reported pace of 1.256 million units.

Building permits rose 0.3 percent to a rate of 1.326 million units in December.

Economists polled by Reuters had forecast housing starts slipping to a pace of 1.250 million units last month.

The release of the December housing starts and building permits report was delayed by a 35-day partial shutdown of the federal government that ended on Jan. 25. No date has been set for the release of January’s report.

The Commerce Department said while delays in data collection could make it more difficult to determine the exact start and completion dates of construction, “processing and data quality were monitored and no significant issues were identified.”

The dollar extended losses against a basket of currencies on the report, while U.S. Treasury prices rose. U.S. stock index futures fell.

SOFTENING GROWTH

The report added to weak December retail sales and business spending plans on equipment in suggesting that economic growth cooled down significantly at the tail end of 2018.

It also implied that residential investment probably contracted in the fourth quarter, which would extend a decline that began in early 2018.

The housing market hit a soft patch last year amid higher mortgage rates as well as land and labor shortages, which led to tight inventories and more expensive homes.

Though mortgage rates have been declining and house price inflation has decelerated, economists expect the housing market weakness to persist at least through the first half of 2019.

A survey last week showed homebuilder confidence increased in February, but builders continued to say land and labor shortages and tariffs on lumber and other key building materials were keeping costs high.

Single-family homebuilding, which accounts for the largest share of the housing market, dropped 6.7 percent to a rate of 758,000 units in December, the lowest level since August 2016.

It was the fourth straight monthly decline in single-family homebuilding. Single-family starts in the South, which accounts for the bulk of homebuilding, rose 2.2 percent in December.

Single-family homebuilding plunged 20.3 percent in the Northeast and dived 18.5 percent in the West. Groundbreaking on single-family homes tumbled 14.2 percent in the Midwest.

Permits to build single-family homes fell 2.2 percent in December to a pace of 829,000 units. Starts for the multi-family housing segment dropped 20.4 percent to a rate of 320,000 units in December. Permits for the construction of multi-family homes rose 4.9 percent to a pace of 497,000 units.

Housing completions fell 2.7 percent to 1.097 million units, the fewest since September 2017. Home completions increased 3.4 percent in 2018.

Reuters (Reporting By Lucia Mutikani; Editing by Andrea Ricci)