U.S. housing starts fall to cap first annual decline since 2009

New U.S. home construction declined for a fourth-straight month in December, wrapping up a disappointing year for an industry that saw annual housing starts fall for the first time since 2009.

Residential starts decreased 1.4% last month to a 1.38 million annualized rate, a five-month low, according to government data released Thursday. New construction fell 3% in 2022 after surging the prior year. The December drop was due to a slump in multifamily projects.

Single-family home building jumped to a 909,000 annualized rate last month, the most since August. However, for all of last year about 1 million one-family houses were started, down 10.6% from 2021 – the biggest drop since 2009.

The median estimates in a Bloomberg survey of economists called for a 1.36 million pace of total residential starts in December.

Applications to build, a proxy for future construction, fell 1.6% to an annualized 1.33 million units in December, the fewest since May 2020. Permits for construction of one-family homes dropped 6.5% last month, also the lowest since the early months of the pandemic.

The housing market rapidly deteriorated last year in the wake of the Federal Reserve’s most aggressive interest-rate hiking campaign since the 1980s. That sent mortgage rates soaring and sidelined many prospective buyers, prompting many builders to offer incentives in hopes of bolstering demand.

While home builder sentiment unexpectedly rose in January, the improvement followed declines in every month last year. That report on Wednesday also pointed to builders still contending with high construction costs and challenging affordability conditions.

Multifamily starts, which are volatile from month to month, slid 19% in December, while permits for new construction rose.

Total new construction decreased in 3 of 4 U.S. regions. The number of homes completed dropped 8.4% to an annualized 1.41 million.

Existing-home sales for December and the full year will be released on Friday, followed by new-home sales data next week.

Weakness in the housing industry is spilling over into other areas of the economy as well. The government’s retail sales report on Wednesday showed purchases at furniture and home furnishing outlets dropped 2.5% in December, the most since the end of 2021. Sales at electronics and appliances merchants fell 5.6% from a year earlier, by far the weakest category.