New Home Starts and Permits Surged in January

As a lack of inventory drives home prices higher and higher, builders are continuing to ramp up the number of new homes under construction in the U.S. In fact, January saw housing starts jump by 9.7% compared to December and building permits increase by 7.4% compared to December! While these numbers are encouraging, there is still plenty of progress to be made before inventory return to normal levels.

January saw housing starts jump to a seasonally-adjusted annual rate of 1,326,000 units, 9.7% higher than December and 7.3% above January 2017. At the same time, building permits, which forecast future growth in housing stock, rose by 7.4% compared to both December and January 2017.

Although these numbers are trending in the right direction, there are a couple of reasons to be wary of their true impact on inventory. First, the margin of error on the number of housing starts was huge at nearly 17%, meaning future revisions could wildly change the final rate of construction. Second, the growth in both permits and starts was driven primarily by multi-unit buildings; multi-unit starts rose by 24% in January, compared to just 3.7% for single-family homes. The disparity was even greater for building permits (25% vs. -1.7%).

Increasing the number of homes for sale is critical to maintaining a healthy housing market, which has seen inventory levels drop for 28 consecutive months. Strong competition for the relatively few homes available caused the median sale price to reach $280,500 in January, a 7.8% increase over last year.