US housing starts fell 9.8%MoM in December to 999k (saar). This is merely a correction of last month’s implausible jump (which was in fact revised further upwards). The generally more reliable single-family component of starts also fell back after a November surge and ended the year at 667k (saar), still up 7.6%YoY. This is not bad at all, given the cold weather in December and increasing mortgage rates.
Housing permits also retreated a bit MoM. The momentum is clearly weakening, with YoY-growth rates in permits down to 4.6%, from double-digit growth figures just a few months back.
Looking ahead, we expect the recovery of housing construction to continue in the new year at a more moderate pace. Mortgage rates have hardly moved following the actual decision to taper in December. But due to increases earlier in 2013, fixed rates are substantially higher than a year ago. For example, the 15-year fixed mortgage rate is 3.5% today versus 2.7% a year ago. This has resulted in declining numbers of mortgage applications since May last year. That said, mortgage rates remain very low and the recovery of the US economy seems to be broadening. We therefore expect demand for new homes to remain firm. Construction activity will likely continue to increase, albeit at a slower pace than we were used to until recently.