Roof builders mounting a prefabricated wooden roof.
The numbers: Housing starts ran at a seasonally adjusted annual rate of 1.23 million in January, the Commerce Department said Friday. Seasonally adjusted housing permits were at an annualized 1.345 million.
What happened: Builders broke ground on more homes and applied for more permits to start construction in the future, a solid vote of confidence in economic growth and a surge of much-needed inventory for the supply-starved housing market. Starts were 19% higher than in December and 7.8% lower than year-ago levels. Permits were 1.4% higher than in December and 1.5% lower than last year.
Even better, builders are making a bigger bet on single-family houses, rather than apartment buildings. Single-family starts ran at a 926,000 seasonally adjusted annual pace, one of the strongest monthly tallies of the recovery.
The January starts figure beat the MarketWatch consensus forecast of a 1.212 million annual rate.
Big picture: For the past several years, U.S. residential builders have produced far too few homes to keep up with population growth and household formation. Late last year, economists at Freddie Mac estimated that cumulative shortfall totaled nearly 5 million homes.
Related: As the housing market stagnates, American homeowners are staying put for the longest stretches ever
There’s reason to believe the pace of building — and buying — may perk up a bit, including some data out earlier this week from the Commerce Department that showed more Americans had ordered spec homes toward the end of last year. But overall the pace of residential construction is likely to remain muted. There are unyielding constraints on builders, including a scarcity of labor amid an immigration crackdown, higher-cost materials made worse by tariffs, and pricey land in the areas that produce the most jobs.
It bears repeating that government data on new-home construction is based on small sample sizes and is prone to big revisions.
What they’re saying: “Building permits ended 2018 some 23% above the level of starts, which was the second largest gap in history (since 1960), portending a powerful pickup,” said economists at BMO Capital Markets before the data was released.
“The rebound in starts reverses the December plunge, which likely was due to a combination of weather effects and homebuilders’ nervousness as the stock market tanked; the numbers hugely overstated the softening in the market,” said Ian Shepherdson, chief economist for Pantheon Macro “New-home sales are now picking up, and the mortgage applications data point to further gains ahead, so single-family construction should creep higher. The multi-family numbers are wild, but the trends are flat. Housing isn’t booming, but neither is it rolling over, and it isn’t going to drag down the rest of the economy.”