US homebuilding falls

Homebuilding fell in January, driven largely by a drop in apartment construction. However, there are indicators of a strong uptick in starts by the middle of the year

By Ryan Smith

17 Feb 2017

Builders broke ground on fewer homes last month, according to data from the Commerce Department. The drop was driven largely by a reduction in apartment construction.

The number of new housing starts dropped by 2.6% in January to a seasonally adjusted annual pace of 1.25 million, Reuters reported. While single-family housing starts rose 1.9%, apartment starts fell by 7.9%.

However, even taking the January decline into account, new home construction has jumped 10.5% in the past year, Reuters reported. More Americans are looking to buy, causing a spike in demand – and higher mortgage rates aren’t yet acting as a drag on the market.

Low inventory, however, continues to frustrate potential buyers. In December, the supply of existing homes fell to its lowest level since 1999, according to Reuters. That low inventory has driven prices upward and sparked bidding wars. And while homebuilders have ratcheted up construction, they’re simply not building fast enough to ease the shortage.

However, builders continue to increase their pace. Building permits rose by 4.6% in January, according to Reuters.

“The big uptick in permits should be good news for inventory-constrained homebuyers, as permits eventually become starts, which in turn become new homes for sale,” said Ralph McLaughlin, chief economist at Trulia. “As a result, we shouldn’t be surprised to see a strong uptick in starts in mid-2017.”