PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Despite January Drop in Housing Starts, the Upward Trend Will Continue

By at 19 February, 2021, 10:30 am

by Raymond J. Keating-

According to a new U.S. Census Bureau report, new housing starts declined in January. But permit numbers indicated that this likely will be little more than a temporary breather in an otherwise hot housing market.

Total housing units started in January registered 1.58 million (on a seasonally adjusted annual rate) in January 2021. That was down by 6.0 percent versus December 2020, and off by 2.3 percent compared to a year earlier. However, compared to the recent pandemic low hit in April, housing starts in January were up by 69.2 percent.

Focusing on single-family units (1 unit), starts at 1.16 million were down by 12.2 percent in January versus December, but had jumped by 17.5 percent compared to a year earlier. In addition, since the pandemic low in April, single-unit starts were by 71.1 percent.

Source: Federal Reserve Bank of St. Louis, FRED

While also keeping in mind that housing numbers tend to be very volatile from month to month, continued growth in housing permits (an indicator of future starts) in January points to growth continuing in terms of future housing starts. In January, housing permits were up by 10.4 percent compared to December, and by 22.5 percent versus a year earlier. Also, permits grew by 76.4 percent from the April pandemic low to January 2021.

And on the single-unit housing front, permits grew by 3.8 percent in January versus December, and were up by 29.9 percent compared to a year earlier. And from the pandemic low in April to January, single-unit permits grew by 90.5 percent.

Source: Federal Reserve Bank of St. Louis, FRED

Housing has been and remains a rather amazing bright spot during much of the pandemic economy. That’s been a good news small business story, for example, with 99.7 percent of employer firms in the residential construction sector having fewer than 100 employees.

And it appears that this positive story will continue, barring major economic setbacks, other exogenous factors, or worsening shortages in terms of building inputs, including labor and materials.

For example, the National Association of Home Builders Index moved up a point to 84 in February. While this came after declines in the previous two months, the Index still remains in solid positive territory, as any measure above 50 indicates improving confidence. Prior to the pandemic hitting, the February 2020 Index came in at 74, and it subsequently plunged to 30 in April.

NAHB Chairman Chuck Fowke noted, “Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows. Builders remain very focused on regulatory and other policy issues that could price out households seeking new homes in a tight market this year.”

As for the overall market conditions, NAHB chief economist Robert Dietz added, “Demand conditions remain solid due to demographics, low mortgage rates and the suburban shift to lower cost markets, but we expect to see some cooling in growth rates for residential construction in 2021 due to cost factors, supply chain issues and regulatory risks. Some builders are at capacity and may not be able to expand production due to these headwinds.”

Keeping up with demand in the housing market is a positive problem to face, especially in our current economy. And the NAHB points on preventing or rolling back unnecessary and burdensome regulations and mandates at the federal, state and local levels make sense. A healthy housing market is good for small businesses, for workers and for the economy in general.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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