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Weather and Economic Uncertainty Combine to Freeze January Housing Data

Weather and Economic Uncertainty Combine to Freeze January Housing Data

Not surprisingly, the cold winter weather during much of January had an adverse effect on Q1 housing starts throughout the entire country. However, when also accounting for the poor performance of global markets during the same period, as well as the prevailing sense of economic uncertainty, January’s housing starts  are not a total disappointment.

January 2016 housing starts were at a seasonally-adjusted annual rate (SAAR) of 1,099,000, or 3.9 periStock_000010117838Mediumcent below the revised December estimate of 1,143,000. This number is also 1.8 percent above the January 2015 rate of 1,080,000. Additionally, single-family housing starts were at a rate of 731,000, which is 3.9 percent below the revised December figure of 761,000.

Building permits decreased in January; privately-owned housing unit permits were at a SAAR of 1,202,000, or 0.2 percent below the revised December rate of 1,204,000. Single-family authorizations were at a rate of 720,000, 1.6 percent below the revised December figure of 732,000.

The US Census Bureau report on January housing data confirmed the lull in construction activity across geographic regions. Seasonally-adjusted housing starts by region included:

  • Northeast: -3.7 percent
  • South: -2.9 percent
  • Midwest: -12.8 percent
  • West: -0.4 percent

January also marks the first month since June, 2015 that The National Association of Home Builders’ (NAHB) sentiment index has dropped below 60. The index fell to 58 in February, marking a decrease of three points over January (readings above 50 still indicate that builders view sales conditions as positive). Again, this marginal drop is not unexpected given the time of year and the current uncertainty within the markets.

Despite conjecture about the possibility of a coming negative interest rate policy (NIRP) from the Federal Reserve, the 30-year fixed mortgage rate actually ticked up from the December rate of 3.85 to end January at 3.87. That said, a NIRP environment or shallow recession later in the year would drag mortgage rates even lower, although such an environment would also dampen home-buying enthusiasm.

Even amid the pervasive sense of uncertainty, NAHB Builders Chief Economist David Crowe recently noted that, "Builders are reflecting consumers' concerns about recent negative economic trends. However, the fundamentals are in place for continued growth of the housing market. Historically low mortgage rates, steady job gains, improved household formations and significant pent up demand all point to a gradual upward trend for housing in the year ahead."

Despite a massive stock market sell-off through much of January, new U.S. single-family home sales surged in December to their highest level in 10 months. Sales rose 10.8 percent to a seasonally adjusted annual rate of 544,000 units, the highest level since February 2015. Unlike January, it’s important to note that most of the country experienced unseasonably mild temperatures in December, no doubt boosting the sales number as potential home buyers were able to get out and shop. New home sales rose 14.5 percent in 2015, the highest level since 2007.

The Mortgage Bankers Association showed applications for home purchase loans increased 8.8 percent for the week ending February 5 from the previous week, which is a promising sign for the larger housing market as we move deeper into 1Q2016. Whether this market has the ability to weather the storm of a global economy teetering on the edge of recession remains to be seen, but it’s at least providing some level of stability as we head into the spring.

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