US housing starts fall in broad pullback after December surge

US housing starts slowed in January as builders pulled back on single- and multifamily home construction amid growing worries over mortgage rates and unsold homes.

New residential construction decreased 9.8% to an annualized pace of 1.37 million last month, slipping after a nearly 16% surge in December, according to government data released Wednesday. That trailed the median estimate of economists surveyed by Bloomberg, who expected an annualized 1.39 million pace.

The slowdown followed an abnormally large gain the previous month which some economists attributed to seasonal adjustments. Single-family starts fell 8.4% to an annualized rate of 993,000 in January amid exceptionally cold weather across the country, marking the first drop since October. Multifamily starts, meantime, declined 13.5% to an annualized 373,000.

Economists and publicly-traded home builders expect the new-home market to see only modest growth this year, dragged down by mortgage rates near 7% and median prices that are 30% higher than in December 2019. Meantime, the prospect of 25% tariffs on goods from Mexico and Canada, a major source of US lumber, and a 10% tariff already in place on Chinese goods have reversed the jolt of confidence builders felt after President Donald Trump’s election in November.

Home contractors thus far have kept luring customers with sales incentives, including mortgage rate buydowns, where they make upfront payments on customers’ behalf to lower financing costs. However, builders increasingly are worried about the supply of new homes on the market — which is currently the highest since December 2007 — and have been slowing construction. Atlanta-based builder PulteGroup Inc. last month told investors it plans to adjust prices to sell off its spec homes, which have reached higher-than-normal levels.

What Bloomberg Economics Says…

“Ground-breaking on new homes slowed dramatically in January after December’s surge, with exceptionally cold weather playing a role. Starts may rebound in February as delayed projects resume. Still, with permit issuance stabilizing, new-home completions accelerating, and inventories of new single-family homes for sale already mounting, we expect construction activity to remain on a slowing trajectory.”

— Stuart Paul, economist

The number of new homes under construction fell 1.4% in January, continuing a downward trend over the past year. Home completions, meantime, rose in January for the first time since August.

Building permits, a leading indicator of future construction, edged higher in January, while single-family permits were unchanged.

Across the US, starts fell in the South, Midwest and Northeast, while the West registered an increase. The new residential construction data are volatile, and the government report showed 90% confidence that the monthly change ranged from a 22.3% decline to a 2.7% gain.

The National Association of Realtors will provide a look at the previously owned home market on Friday, when it releases monthly data on existing-home sales.