Housing Starts Jumped in November

By at 19 December, 2023, 4:05 pm

by Raymond J. Keating

The U.S. Census Bureau has served up some good news on housing starts in November.

Housing starts registered a seasonally adjusted annual rate of 1,560,000 in November, which was 14.8 percent higher than the October rate. It also was up by 9.3 percent versus November 2022.

In addition, November’s housing starts were the highest level since May of this year, and the November 2023 level essentially matched the pre-pandemic, February 2020 rate. (See the following chart.)

Source: Federal Reserve Bank of St. Louis, FRED

Meanwhile, housing permits in November registered a seasonally adjusted annual rate of 1,460,000. That was down by 2.5 percent compared to October, but up by 4.1 percent versus November of last year. Housing permits are an indicator of future housing starts.

The National Association of Home Builders reported on December 18: “Falling mortgage rates helped end a four-month decline in builder confidence, and recent economic data signal improving housing conditions heading into 2024.”

NAHB Chief Economist Robert Dietz had some interesting points to make. According to the release, he noted that “the recent pessimism in builder confidence this fall has been somewhat counter to gains for the pace of single-family permits and starts during this time frame.”

Dietz further explained: “Our statistical analysis indicates that temporary and outsized differences between builder sentiment and starts occur after short-term interest rates rise dramatically, increasing the cost of land development and builder loans used by private builders. In turn, higher financing costs for home builders and land developers add another headwind for housing supply in a market low on resale inventory.”

Dietz added a point worth noting not just for housing but for other industries as well. That is, state lawmakers should be looking to reduce the costs of regulation. He argued, “While the Federal Reserve is fighting inflation, state and local policymakers could also help by reducing the regulatory burdens on the cost of land development and home building, thereby allowing more attainable housing supply to the market.”

Housing and Small Business

Housing overwhelmingly is about small businesses. For example, in the residential building construction industry 92.3 percent of employer firms have fewer than 10 employees, and 97.3 percent fewer than 20 workers, according to the latest Census Bureau data (2020).

For good measure, residential housing investment plays a major part in the GDP investment numbers. Get the policy mix right – that is, low taxes, a light regulatory touch and sound monetary policy – and housing will flourish, which means that many small businesses and their employees are flourishing.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.


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