Housing Permits Remained Hot in January but Mortgage Rates Also Continued to Rise

Total housing starts fell to a 1.638 million annual rate in January from a 1.708 million pace in December, a 4.1 percent decrease. From a year ago, total starts are up 0.8 percent. However, total housing permits were very strong again in January, posting a 0.7 percent gain to 1.899 million versus 1.885 million in December, the second consecutive 15-year high (see first chart). Total permits are up 0.8 percent from the January 2021 level.

Starts in the dominant single-family segment posted a rate of 1.116 million in January versus 1.182 million in December, a drop of 5.6 percent and are down 2.4 percent from a year ago. Single-family permits posted a 6.8 percent jump to 1.205 million versus 1.128 million in December (see first chart).

Starts of multifamily structures with five or more units decreased 2.1 percent to 510,000 but are up 8.7 percent over the past year while starts for the two- to four-family-unit segment were up 140.0 percent percent at a 12,000-unit pace versus 5,000 in December. Combined, multifamily starts were off 0.8 percent to 522,000 in January and show a gain of 8.3 percent from a year ago.

Multifamily permits for the 5-or-more group fell 8.8 percent to 629,000 while permits for the two-to-four-unit category sank 3.0 percent to 65,000. Combined, multifamily permits were 694,000, off 8.3 percent for the month (see first chart) but up 12.8 percent from a year ago.

Regionally, single-family permits were up in three regions: the West saw a 23.3 percent surge to 296,000 while the South managed a 4.2 percent increase to 677,000, the Midwest gained 3.9 percent to 161,000, but the Northeast fell 14.5 percent to 71,000 in January (see second chart).

Input costs continue to soar, with lumber coming in at around $1,324 per 1,000 board feet in mid-February while copper was just over $10,000 per metric ton (see third chart). The increases in input costs will pressure profits at builders and may lead to more price increases for new homes (see fourth chart).

Furthermore, mortgage rates have continued to rise, with the rate on a 30-year fixed rate mortgage hitting 3.70 percent in mid-February (see fifth chart). Higher home prices and higher mortgage rates are likely to weigh future housing activity.

After a pullback in activity in the first three quarters of 2021, single-family activity has shown renewed strength. While the implementation of permanent remote working arrangements for some employees may be providing continued support for housing demand, ongoing home price increases combined with the recent surge in mortgage rates may work to cool activity in coming months.

Leave a Reply

Your email address will not be published. Required fields are marked *