U.S. housing starts at 13-year high, factory output
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[January 18, 2020] By
WASHINGTON (Reuters) - U.S. homebuilding
surged to a 13-year high in December as activity increased across the
board, suggesting the housing market recovery was back on track amid low
mortgage rates, and could help support the longest economic expansion on
There was also some encouraging news on manufacturing, with other data
on Friday showing production at factories increasing for a second
straight month in December, indicating some stabilization in one of the
industries hardest hit by the Trump administration's 18-month trade war
Though U.S. President Donald Trump and Chinese Vice Premier Liu He
signed a "Phase 1" trade deal on Wednesday, a first step toward defusing
the trade war, manufacturing is not out of the woods yet. Boeing <BA.N>
this month suspended production of its fast-selling 737 MAX jetliner and
ripple effects of that decision are already being felt, with a major
supplier announcing layoffs last week.
"The shockingly large rise in home construction is likely to provide an
unexpected boost to growth," said Joel Naroff, chief economist at Naroff
Economic Advisors in Holland, Pennsylvania. "However, the first quarter
of 2020 it might be a lot softer."
Housing starts jumped 16.9% to a seasonally adjusted annual rate of
1.608 million units last month, the highest level since December 2006.
The percentage gain was the largest since October 2016. Groundbreaking
activity last month was likely flattered by unseasonably mild weather
and probably overstates the health of the housing market.
Data for November was revised higher to show homebuilding rising to a
pace of 1.375 million units, instead of advancing to a rate of 1.365
million units as previously reported.
Economists polled by Reuters had forecast housing starts would increase
to a pace of 1.375 million units in December.
The dollar firmed against a basket of currencies, while U.S. Treasury
debt prices fell. Stocks on Wall Street were trading higher, with the
main indexes hitting record highs.
Housing starts soared 40.8% on a year-on-year basis in December. An
estimated 1.290 million housing units were started in 2019, up 3.2%
compared to 2018.
The rise in construction, together with an increase in completions and
the inventory of homes under construction, could ease a housing shortage
that has constrained sales over the last couple of years. Housing
completions increased 5.1% to a rate of 1.277 million units in December.
Realtors estimate that housing starts and completion rates need to be in
a range of 1.5 million to 1.6 million units per month to plug the
inventory gap. The stock of housing under construction rose 2.0% to
1.192 million units, the highest level since March 2007.
"It's going to take more than increased construction to completely
emerge from the ongoing and historic inventory shortage, but more home
building certainly won't hurt," said Matthew Speakman, economist at
online real estate firm Zillow. "For now, it appears that builders are
game for the challenge."
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A new apartment building housing construction site is seen in Los
Angeles, California, U.S. July 30, 2018. REUTERS/Lucy Nicholson
The housing market is regaining momentum after the Federal Reserve cut interest
rates three times last year, pushing down mortgage rates from last year's
multi-year highs. The 30-year fixed mortgage rate has dropped to an average of
3.65% from its peak of 4.94% in November 2018, according to data from mortgage
finance agency Freddie Mac.
Though a survey on Monday showed confidence among homebuilders dipped in
January, it remained near levels last seen in mid-1999. Builders said they
"continue to grapple with a shortage of lots and labor while buyers are
frustrated by a lack of inventory, particularly among starter homes."
While the housing market accounts for about 3.1% of gross domestic product, it
has a bigger footprint on the economy, which is now in its 11th year of
expansion, through industries such as utilities, retail and manufacturing.
In a separate report on Friday, the Fed said manufacturing production rose 0.2%
last month, adding to November's 1.0% increase. Manufacturing output, however,
fell 1.0% in the fourth quarter. It dropped 0.2% in 2019, the first decline
The U.S.-China trade war has eroded business confidence, leading to a decline in
capital expenditures. The housing market improvement is offsetting some of the
drag on the economy from weak manufacturing.
Residential investment rebounded in the third quarter after contracting for six
straight quarters, the longest such stretch since the 2007-2009 recession. It is
expected to contribute to gross domestic product again in the fourth quarter.
Groundbreaking activity could, however, slow in the coming months as building
fell 3.9% to a rate of 1.416 million units in December after hitting the highest
level in more than 12-1/2 years in November. An estimated 1.369 million building
permits were authorized in 2019.
Single-family homebuilding, which accounts for the largest share of the housing
market, jumped 11.2% to a rate of 1.055 units in December, the highest level
since June 2007. Single-family housing starts rose in the Midwest and the
populous South. They fell, however, in the Northeast and West.
Single-family housing building permits slipped 0.5% to a rate of 916,000 units
in December after rising for seven straight months.
Starts for the volatile multi-family housing segment vaulted 29.8% to a rate of
553,000 units last month. Starts for buildings with five units or more were the
highest since July 1986. Permits for the construction of multi-family homes fell
9.6% to a rate of 500,000 units.
(Reporting by Lucia Mutikani; additional reporting by Howard Schneider; Editing
by Paul Simao and Chris Reese)
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