US housing starts fall, building permits near 13-year high

February 20, 2020
The economy looks good with residential home building activity beating expectations and a little more producer price inflation

WASHINGTON: US homebuilding fell less than expected in January while permits surged to a near 13-year high, pointing to sustained housing market strength that could help keep the longest economic expansion in history on track.

Other data on Wednesday showed producer prices increasing by the most in more than one year last month, boosted by rises in the cost of services such as health care and hotel accommodation. The reports could support the Federal Reserve’s desire to keep interest rates unchanged at least through this year after lowering borrowing costs three times in 2019.

“The economy looks good with residential home building activity beating expectations and a little more producer price inflation, even if the data overstate how well the country is doing in terms of generating the growth and inflation the Federal Reserve wants to see,” said Chris Rupkey, chief economist at MUFG in New York.

Housing starts dropped 3.6 percent to a seasonally adjusted annual rate of 1.567 million units last month, the Commerce Department said. That followed three straight monthly increases.

Data for December was revised up to show homebuilding rising to a pace of 1.626 million units, the highest level since December 2006, instead of surging to a rate of 1.608 million units as previously reported.

Economists polled by Reuters had forecast housing starts falling to a pace of 1.425 million units in January. Housing starts jumped 21.4 percent on a year-on-year basis in January. An estimated 1.291 million housing units were started in 2019, up 3.3 percent compared to 2018.

Building permits soared 9.2 percent to a rate of 1.551 million units in January, the highest level since March 2007, lifted by gains in both single- and multi-family housing segments.

The housing market remains on solid footing, supported by the lowest mortgage rates in more than three years. Though housing accounts for about 3.1 percent of gross domestic product, it has a giant footprint on the economy. Housing market stability could help to keep the economic expansion, now in its 11th year, on course, amid risks from the coronavirus, slowing consumer spending and weak business investment.

A survey on Tuesday showed confidence among homebuilders hovering near a two-year high in February. But builders continued to complain that “a shortage of construction workers and a dearth of lots are hindering the production of affordable housing in local communities across the nation.”

The 30-year fixed mortgage rate is at an average of 3.47 percent, the lowest since October 2016, according to data from mortgage finance agency Freddie Mac.

“Housing is proving to be a solid link in a cooling economy,” said Nancy Vanden Houten, lead US economist at Oxford Economics in New York.

The data and a slowdown in the number of new reported cases of coronavirus helped to lift the dollar against a basket of currencies. Stocks on Wall Street were trading higher, with the S&P 500 and the Nasdaq hitting new highs. US Treasury prices slipped.

A separate report from the Labor Department on Wednesday showed the producer price index for final demand jumped 0.5 percent last month, the largest gain since October 2018, after climbing 0.2 percent in December. In the 12 months through January, the PPI advanced 2.1 percent, the biggest increase since May, after rising 1.3 percent in December. Economists had forecast the PPI gaining 0.1 percent in January and rising 1.6 percent on a year-on-year basis.


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