//Economic Report: Housing starts sink 11% to two-year low in December, but rising permits point to rebound

Economic Report: Housing starts sink 11% to two-year low in December, but rising permits point to rebound

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Construction on new homes slowed dramatically in December, but a rebound in early 2019 seems to be in the cards.

The numbers: Construction on new houses sank 11% in December to a more than two-year low, but builders applied for more permits in a sign that a rebound may be near.

Housing starts tumbled to an annual rate of 1.08 million in the final month of 2018 from a revised 1.21 million in November, according to a report delayed by the recently ended partial government shutdown.

That is the lowest level since September 2016. Economists polled by MarketWatch had expected starts to total 1.23 million.

Even though new construction hit a lull in December, permits to build additional houses edged up 0.3% to a 1.33 million annual pace. It appears builders will break new ground at a faster pace in early 2019.

What happened: Construction was flat in the Northeast and fell sharply everywhere else.

The biggest decline occurred in multi-dwelling projects of two units or more. They took a 20% dive in December vs. a 6.7% decline for single-family homes, which account for the bulk of the housing market.

Read: Small-town U.S.A. falls further behind urban America in job opportunities

Housing starts still rose to 1.25 million last year from 1.20 million in 2017, however. The decline in 2017 was the first since 2010.

Because of delays caused by the partial government shutdown, which ran a record 35 days, the U.S. Census incorporated updates into the latest housing-start figures that normally would have occurred later on. The result is that the initial December report should be more accurate than is typically the case on first look.

Read: Business investment dries up after Trump tariff tiff with China, global woes, shutdown

Big picture: The housing market slowed in the second half of 2018 largely because of rising mortgage rates and high home prices. Construction companies such as LGI

LGIH, -1.89%

 and D.R. Horton

DHI, +0.78%

 have struggled to find skilled craftspeople to fill open jobs amid an industrywide shortage.

Builders also turned more cautious late in the year after a late-2018 stock-market selloff that culminated in the worst-ever Christmas Eve decline on record and sudden talk of recession that reached a fever peach in December.

The good news: Mortgage rates recently fell to a one-year low, Wall Street has rebounded, consumers are more confident and talk of a recession has evaporated ahead of the spring selling season.

All these factors could potentially setting up an increase in sales and construction later this year.

Read: Home prices fall to a fresh four-year low, Case-Shiller says

What they are saying?: “Compared to housing starts, building permits are less volatile and are considered a leading economic indicator,” said Neil Dutta, head of macroeconomics at Renaissance Macroresearch.

“Permits rose for three of the last four months while starts plunged,” he noted. “Thus, we would expect construction growth to pick up in the months ahead.”

Market reaction: A fund that tracks housing stocks

ITB, +0.22%

slid 0.6%. The Dow Jones Industrial Average

DJIA, -0.13%

and S&P 500

SPX, +0.03%

fell in Tuesday trades.

The 10-year Treasury note yield

TMUBMUSD10Y, -0.30%

dipped slightly to 2.64%.