Housing starts increased in December as they started making up ground from the previous month’s drop, according to the release from the U.S. Census Bureau and the Department of Housing and Urban Development.
Privately- owned housing starts increased 11.3% month-over-month to 1.23 million in December. That is up from November’s 1.1 million, and up 5.7% from last year’s 1.16 million.
While this number is an increase from last month, one expert explains that it is still far from what is needed in the market.
“Let’s hope the rising trend in new home construction continues throughout 2017,” said Lawrence Yun, National Association of Realtors chief economist. “As evidenced by the brisk pace of rent and home-price growth, the country desperately needs more housing units.”
“Aside from providing consumers with more choices, the increased construction also brings added benefit of boosting economic growth and job creation,” Yun said. “Ideally, housing starts should be in the range of 1.5 to 1.6 million. Good news today on trend, but still far from the goal.”
Of those, single-family housing starts actually decreased 4% in December to 795,000, down from November’s 828,000 starts.
Despite this decrease in the single-family sector, 2016 proved to be the best year for housing starts since 2007, proving the heights of consumer demand.
“For the year as a whole, housing starts of 1.17 million units were the strongest since 2007 as home builders try to keep up with rising demand – pushed up by low, if rising, mortgage rates, solid job growth, rising wages and faster household formations, especially from Millennials,” Nationwide Chief Economist David Berson said.
“Even with stronger home construction in recent years, more increases in the supply of new homes will be needed to balance out the market, reflected in rapid house price appreciation in recent years,” Berson said.
Building permits also saw a monthly decrease as privately-owned housing units authorized by building permits in December decreased 0.2% to 1.21 million. This is down slightly from November’s 1.212 million, but is 0.7% above December 2015’s 1.2 million.
However, single-family authorizations performed better in December at 4.7% above November’s 780,000 to 817,000 permits.
This increase in single-family building permits could be just what the market needs to fuel new home builds to meet the growing demand in 2017.
“2016 ended on a high note for home builders, with a rebound in construction on new homes in December,” Quicken Loans Vice President Bill Banfield said.
“While tight inventory continues to be an anchor holding back the housing market, the year-over-year growth shows momentum is building and heading in the right direction,” Banfield said. “Demand should remain high as confidence in the economy grows stronger.”
Privately-owned housing completions slipped in December to 1.12 million, down 7.9% from November’s 1.22 million but up 8.7% from the previous year’s 1.03 million.
Of those, single family housing completions decreased only 0.9% from November’s rate of 768,000 to 761,000 in December.
There is still room for growth, and housing starts continue to struggle against historic norms.
“While starts increased modestly in December, they are only at 62% of their long-run average,” Trulia Chief Economist Ralph McLaughlin said. “Clearly, starts have much room to grow to meet historical norms.”