New home construction projects slipped in the first month of 2017 as the country continues to grapple with an inventory shortage.
Housing starts in January dropped 2.6 percent over the month, according to a report published Thursday by the Census Bureau. Completions, meanwhile, dropped 5.6 percent and were down 0.9 percent from totals posted in January 2016.
The number of building permits issued last month climbed a healthy 4.6 percent from what was posted in December. But permits for single-family housing units, specifically, were down 2.7 percent.
The report was generally considered to be underwhelming for a real estate sector that in many parts of the country is short on available homes. With interest rates still low and mortgages relatively affordable, demand for housing in much of the country outstrips the supply of available homes for sale. This has restricted home sales in recent months and has led to price increases that are believed to be pricing some lower-income first-time home buyers out of the market.
"Housing starts surprisingly fell in January, although December was revised upward and this makes the January drop look a bit larger," David Berson, a senior vice president and chief economist at Nationwide, said in a statement Thursday. "While weather was much warmer than usual in January across the country, usually a positive for housing starts in the winter, starts in the West plummeted by more than 41 percent – likely due to the extremely wet weather along the Pacific Coast (and especially in California) last month."
Indeed, the West Coast suffered the most significant decline in monthly starts, while the Midwest saw the number of new projects started drop nearly 18 percent.
Perhaps bolstered by the unseasonably warm weather, however, the Northeast saw starts soar more than 55 percent, while the geographic South enjoyed gains of 20 percent.
Housing starts have been choppy in recent months, but the uptick in building permits is a good sign of what's in store in the months ahead. The slight decline in single-family permits isn't particularly encouraging, but the drop was slight and indicates a respectable number of construction projects are likely on the horizon.
"The uptick should also be good news for inventory-constrained home buyers, as permits eventually become starts, which eventually become new homes for sale," Ralph McLaughlin, chief economist at real estate hub Trulia, told U.S. News in an email Thursday. "As a result, we shouldn’t be surprised to see a strong increase in starts in mid-2017."
Berson appeared to share these sentiments, citing the country's solid economic footing as a sign that starts are likely to pick up in the months ahead. Job gains have been plentiful, unemployment has remained low, wage growth has started to materialize and consumer confidence is surging as stock indexes reach all-time highs.
"Given positive fundamentals for housing demand, the rise in permits, and a probable return to more seasonable weather in coming months (especially in the West), we expect housing starts to rise again for 2017," Berson said.