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November Housing Starts & Permits Dip, 2015 Outlook Stable

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Though housing starts and permits declined in the month of November, the broader housing trends remained stable to slightly positive.

As per data provided by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau in Dec 2014, nationwide housing starts decreased 1.6% in November to a seasonally adjusted annual rate of 1.03 million units.

Housing construction increased in the Northeast, Midwest and West by a solid 8.37%, 14.4% and 28.1% respectively. Nonetheless, housing construction decreased in the South by 19.5%.

While multifamily starts increased 6.7% to 351,000 units, single-family housing starts decreased 5.4% to 677,000 units.     

It is worth noting that housing starts have remained above the 1 million mark for three consecutive months.

New building permits data which is an indicator of future home building activity dropped 5.2% in November. The decrease in building permits was driven by an 11% decline in multifamily permits and 1.2% decrease in single family starts.  Regionally, permits declined in the Midwest, South and West by 7.3%, 10% and 5.6% respectively.  However, the permit issuance in the Northeast was up 27.4%.

Despite the softer numbers, analysts in general believe that the underlying housing conditions remain stable and will pick up momentum in the New Year.

The housing market has recovered at a steady pace in the second half of 2014 after a slump at the beginning of the year, thanks to overall economic growth, improving job numbers, growing consumer confidence, moderating home prices, stabilizing mortgage rates and a low level of housing inventory.

With the economy looking better in 2014 than last year, the housing outlook for 2015 is stable to slightly better.

In fact, homebuilders in general seem quite optimistic about improving demand in the future. Homebuilder confidence in newly built single-family homes market, as indicated by the National Association of Home Builders (NAHB)/Wells Fargo housing market index (HMI), declined a point to 57 in December. However, HMI stayed well above 50, which is the dividing line between expanding and contracting activity levels.

However, worries persist in the form of a possible rise in interest/mortgage rates in 2015 with the Federal Reserve closing the ‘quantitative easing’ program in October. Higher interest/mortgage interest rates may have a moderating effect on housing demand and pricing.

And yet, there is no reason not to be optimistic about the broader housing sector over both the short and long term. Most homebuilders believe that housing markets will continue to recover slowly but steadily in 2015.  

During its last earnings conference call, D.R. Horton, Inc. (DHI - Free Report) stated that the current housing market conditions are “relatively stable," PulteGroup, Inc. (PHM - Free Report) expects a “sustained albeit gradual recovery in housing demand.” Lennar Corp. (LEN - Free Report) believes the housing market is recovering at a slow pace, though moving upward in a fairly narrow channel.

Interestingly, California-based homebuilder, KB Home (KBH - Free Report) believes that the housing recovery “varies significantly on a local basis” with some areas demonstrating strong demand and others witnessing softer volumes.

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