Feb 27, 2019

Shutdown exacerbates December's U.S. home building decline

Dion Rabouin, author of Markets
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Data: Federal Reserve Bank of St. Louis; Chart: Chris Canipe/Axios

Data released Tuesday showed U.S. home building starts in December were the lowest since September 2016, and the 11.2% fall from November was the biggest one-month decline since January 2007.

Yes, but: U.S. building permits rose during the month, by 0.3%, meaning a sharp divergence between the number of actual building constructions started and the number of permits filed to build.

What they're saying: "The divergence ... reflects the December chaos around Federal Reserve interest and balance sheet policies, fearing new tariffs on imported construction materials, declining small business confidence and a federal government shut-down that damped new start enthusiasm," Steven Skancke, chief economic advisor at investment firm Keel Point, and a former Treasury Department official, tells Axios in an email.

Between the lines: The housing starts data collection was interrupted by the 35-day shutdown, which Skancke and others say can have a disproportionate negative impact.

  • Plus, U.S. interest rates rose through Q4, the stock market sold off and confidence among homebuilders suffered as did homebuilder stocks based on the NAHB index.

It was "the perfect storm," Bank of America Merrill Lynch's Global Research team said in a note. "The good news is that both have rebounded impressively since the start of the year. This sets up for a recovery in starts as builders feel better about their growth prospects."

  • Further, they said, the last time the gap between the two measures was this large was May 2015, "and starts rebounded sharply in the month following."

What to watch: "While we think the data will recover in the near term, it will still leave a further slowing in housing activity," BAML's analysts said.

The bottom line: "For a housing sector already assumed on shaky legs, this is alarming," said Jon Hill, interest rates strategist at BMO Capital Markets.

Go deeper: The mixed views on a housing market rebound

Go deeper

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