New residential construction projects or privately-owned housing starts, a key indicator of economic strength, declined 4.1 percent in January, as some regions in the country face freezing weather conditions along with continuing supply chain issues.
“Privately‐owned housing starts in January were at a seasonally adjusted annual rate of 1,638,000. This is 4.1 percent below the revised December estimate of 1,708,000, but is 0.8 percent above the January 2021 rate of 1,625,000,” according to the monthly new-residential construction report (pdf) published on Feb. 17 by the U.S. Commerce Department.
“Single‐family housing starts in January were at a rate of 1,116,000; this is 5.6 percent below the revised December figure of 1,182,000. The January rate for units in buildings with five units or more was 510,000.”
Region-wise, housing starts in the Midwest for single units fell from 202,000 in December to 144,000 in January, a decline of over 28 percent. In the Northeast, it fell from 66,000 to 49,000 during the same period. The South saw a decline from 659,000 units to 628,000 units while in the West, the numbers rose from 255,000 to 295,000 units.
In regions like the Tennessee Valley and Midwest, temperatures were mostly below average in January. New construction in the Midwest fell sharply as winter weather dampened construction activity. The difficulty in hiring skilled laborers as well as soaring material costs added to the problem.
For instance, prices of softwood lumber, a key component of construction, rose by 21.3 percent in December. This was followed by a 25.4 percent increase in January. Another factor adding to the dampened construction activity is the difficulty in procuring building supplies.
“Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops, and appliances,” Jerry Konter, chairman of the National Association of Home Builders (NAHB) said in a Feb. 16 blog post. “These delivery delays are raising construction costs and pricing prospective buyers out of the market.”
On the positive side, building permits for privately-owned housing units rose by 0.7 percent in January to 1,899,000 from 1,885,000 in December on a seasonally adjusted annual rate basis. Compared to the same month last year, 0.8 percent more building permits were authorized in January 2022. The number of single-family authorizations for the month was at 1,205,000, which is 6.8 percent higher than December’s 1,128,000. Permits for single units rose in the Midwest, Southwest, and West, while dropping in the Northeast.
As the supply of previously owned homes is said to be at record lows, builders are expected to be busy. The rise in permits indicates that a rebound might be coming in the next few months.
“Despite a somewhat slower start to 2022, builders have continued to make progress on their backlog of homes, and consumer demand continues to outpace supply,” Kelly Mangold from RCLCO Real Estate Consulting said in a note, according to Bloomberg.
On the demand side, interest rates on mortgages have risen, reported the Mortgage Bankers Association (MBA). Mortgage applications for the week ending Feb. 11 declined 5.4 percent from the previous week on a seasonally adjusted basis. In a survey conducted by Fannie Mae in January, only 25 percent of the respondents said that it is a good time to purchase a house, which is a record low.