January Housing Starts Research Notes

by Jim Baird on February 20, 2013

CaptureStarts cooled in January after reaching a four-year high in December

Privately-owned housing starts declined to 890,000 in January, from an upwardly revised 973,000 in the prior month.  The December result represented the strongest monthly rate since 2008.  While a modest disappointment relative to expectations exceeding 900,000, the preliminary estimate for January still reinforces that the overall upward trend in housing construction remains intact.

The housing market remains an area of relative strength in an otherwise lackluster economy.  Even as the broad economy faltered late last year, housing activity continued to charge ahead.

As a leading indicator of overall economic activity, sustained improvement in the housing market is a positive sign for future growth prospects.

Despite the improvement in housing market conditions in recent years, overall housing growth remains subdued from a longer term time frame.  Conditions are still somewhat strained in the aftermath of the housing boom and bust.  The healing process is likely to be a slow one, particularly given the slow pace of expansion, elevated unemployment, and limited income growth.  Results for 2012 were still among the weakest since the Census Bureau began tracking the data in 1959, trailed only by the preceding three years.  Looking forward, rising home prices and gradually improving demand should bode well for housing sector growth as conditions continue to gradually improve.

Some headwinds still exist in the housing space including the gradual overhang of existing housing units, limited household income growth, limited consumer confidence, and stricter lending standards.  Nonetheless, the road ahead for housing looks comparatively good as the shadows from the housing bust gradually recede.  All things considered, conditions should continue to become more constructive for the housing market in the years ahead.

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