Smoke on Cars
Auto Market Weekly Summary
Monday January 24, 2022
- Permits for housing starts hit a 16-year high, setting the stage for a strong 2022.
- Existing home sales fell on low inventory and climbing mortgage rates.
- COVID-19 drove jobless claims higher.
COVID-19 cases, driven by the omicron variant, surged to record levels in January but peaked last week and started to decline. COVID-19, inflation, wintery weather and stock market volatility have weighed on consumer sentiment, but it too began to improve by the end of last week.
New jobless claims increased again due to omicron. New construction rose in December, and strong housing permit activity sets up 2022 for more growth. Existing home sales declined in December as inventory fell to a record low.
Housing starts strong: Residential construction improved at year-end, and the highest permitting pace in almost 16 years sets the stage for strong performance in 2022.
The seasonally adjusted annualized rate (SAAR) of housing starts increased 1.4% when a small decline had been expected. Permits increased 9.1% when a decline of 0.8% had been expected. Permitting fee and rule changes can cause big swings in December activity, but the gain still represents substantial growth in the new construction pipeline for 2022.
After the December 2021 increase, starts were up 2.5% year over year and up 10.0% compared to December 2019. Permits were up 6.5% from a year ago and up 28.9% compared to 2019. Permits lead starts, so the permitting pace at 1.873 million units was higher than the 1.702 million starts pace, an indication that starts will increase substantially in future months. Material shortages and associated increases in costs as well as labor shortages held back activity in 2021.
Single-family starts declined 2.3% in December, while multifamily jumped 10.6%. In permits, both single-family and multifamily increased in December, but it was multifamily that saw the largest gain, up 21.9%. Compared to 2019, single-family permits were up 20%, while multifamily permits were up 45%.
Multifamily trends are more volatile in this government-sourced survey data and are subject to the most revisions. However, with rent increases accelerating, investment in additional multifamily units is needed.
Existing home sales dip: Existing home sales declined more than expected in December as supply tightened and mortgage rates moved higher. The pace of sales slowed to the slowest pace since August.
The existing home sales SAAR declined 4.6% to 6.18 million from an upwardly revised 6.48 million in November. At the December 2021 rate, existing home sales were down 7.1% from a year ago but up 12.2% compared to December 2019. Inventory declined to 910,000 units, which was down 14.2% from a year ago to a new record low.
The National Association of Realtors reported that 79% of the homes sold in October were on the market for less than a month, and the typical time on market was 19 days, which was just two days more than the record low that existed from April through September. The months’ supply of homes for sale fell to a record low of 1.8 months, which is about a quarter of what is considered normal. The median sales price increased to $358,000, which was up 15.8% year over year.
Consumer sentiment mixed: The daily index of consumer sentiment from Morning Consult improved slightly in each of the last two days of the past week but was still down 0.7% over the previous week. As a result, sentiment is down 0.3% for January thus far after declining 2.3% in December. The Morning Consult Index as of January 21, 2022, was down 22.7% since February 29, 2020, but is up 0.3% year over year.
Jobless claims rise: As of January 8, 1.55 million people were on traditional unemployment benefits, which was a new low for the pandemic and 164,000 lower than the claims level before the pandemic began.
The broadest measure of continuing claims, which had included pandemic unemployment assistance before it ended in September, was 2.12 million in the latest data from the week ending January 1. The total number of people receiving some form of benefit is only 26,000 higher than the 2.1 million level prior to the pandemic beginning.
However, because of the increase in COVID-19 cases in January, initial claims are increasing. Initial claims increased 55,000 last week to a 12-week high of 286,000 from an upwardly revised 231,000 the prior week. Weekly initial claims had been lower than the 212,000-weekly average for the first 11 weeks of 2020 leading up to the pandemic throughout December.
The next Auto Market Report video will be published on Smoke on Cars on Tuesday, February 1.
Jonathan Smoke is the chief economist for Cox Automotive.