U.S. housing starts and permits surge in December

U.S. homebuilding and permits surged in December, thanks in part to historically low mortgage rates, but experts say momentum could slow due to skyrocketing lumber prices and a shortage of labor.

According to the latest joint report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, housing starts jumped 5.8% to a seasonally adjusted annual rate of 1.669 million units last month.

Economists polled by Reuters had forecast starts would rise to a rate of 1.560 million units in December. Homebuilding increased 5.2% on a year-on-year basis. Starts totaled 1.380 million in 2020, up 7.0% from 2019.

Permits for future homebuilding accelerated 4.5% to a rate of 1.709 million units in December. Permits, which typically lead starts by one to two months, totaled 1.452 million last year, a 4.8% increase from 2019, according to the report released on Jan. 21.

Single-family homebuilding, the largest share of the housing market, soared 12.0% to a seasonally adjusted annual rate of 1.338 million units. Single-family starts have increased for eight straight months.

Though the housing market and manufacturing remain bright spots in an otherwise struggling economy, the Covid-19 pandemic is hurting the availability of labor at construction sites as sick workers stay at home.

Softwood lumber prices surged 52.2% on a year-on-year basis in December, according to data from the U.S. Labor Department.

The housing market is being supported by cheaper mortgages and an exodus from city centers to suburbs and other low-density areas as companies allow employees to work from home and schools shift to online classes because of the pandemic. About 23.7% of the labor force is working from home. Lower-wage earners in the services sector have borne the brunt of the coronavirus crisis.

Single-family building permits raced 7.8% to a rate of 1.226 million units in December. Homebuilding is being supported by lean inventories, especially for previously owned homes.

The 30-year fixed mortgage rate is around an average of 2.79%, according to data from mortgage finance agency Freddie Mac. Starts for the volatile multi-family segment tumbled 13.6% to a pace of 331,000 units. Building permits for multi-family housing projects fell 3.0% to a pace of 483,000 units.