Housing supply showed no sign of slowing down in January despite a decrease in starts because of the omicron surge.
The one-time impact—which has subsided quickly—caused housing starts to decline by 4.1% in January to 1.638 million from 1,708 million in December on an annualized rate. But housing starts remained well above the long-term equilibrium for housing supply of around 1.5 million a year.
On top of that, building permits—a proxy for future supply—beat market expectations by a wide margin, rising by 0.7% on the month. Estimates had called for a decline of 7.2%. The top-line number for new permits stood at 1.899 million, the highest in 15 years. It often takes about two months for construction to begin after a permit is issued.
Even as demand for housing has moderated since its peak in late 2020 and early last year, supply has been soaring as some of the constraints on input and supply chain issues have continued to ease.
Even with the strong numbers, though, the market remains millions of homes short of demand. The large gap between demand and supply as well as high prices have certainly given builders more incentive to supply more homes.
Because of the omicron surge, both completions and permits not started declined in January. While completions fell by 5.2% to 1.246 million, the number of permits not started increased by 4.9% to 280,000.
The takeaway
The continuing improvement in supply is an encouraging sign for a housing market that has been running concerningly hot. A rise in supply while demand tempers will help to keep housing prices down, and, as a result, the shelter component of inflation in check. An imbalanced housing market only shuts many potential home buyers out of the market because of high prices.
