U.S. housing starts blew away consensus expectations for the month of December, roaring ahead 5% in the month.

The pace of new home construction came in at its strongest rate since way back in June of 1986, says RBC Financial Group economists, as 1.84 million units were placed under construction against a consensus call for 1.68 million units. November housing starts were revised upward significantly to 1.75 million units, it notes. “As evidence of likely continued strength, building permits issued by municipalities soared to 1.88 million units and this will carry housing markets in future months.”

BMO Nesbitt Burns notes that December has a big seasonal factor, which accounted for much of the month’s gain, but says that still does not take away from the strength of the housing market. “Non-seasonally adjusted starts surged 18.5% from last December’s level. As well, the gains were equally weighted between single and multiple starts. Every region made gains last month, led by an 18.2% jump in the Northeast. The non-seasonally adjusted figure in the Northeast recorded a monthly gain in December for the first time since 1992, leading to the big seasonally adjusted pop.”

RBC notes that the performance of U.S. housing markets is defying both the secular theorists and the cyclical pundits. “Long-run forecasts for the 1990s and into the twenty-first century that first started coming out a decade and a half ago and that were based on long-run demographic change characterized by aging baby boomers have proven themselves to be wildly off base for many years in calling for weak housing markets. By such forecasts, not only should this boom not have occurred, but housing markets should
have instead gone into a deep funk by now. Such is one of the many reasons we have witnessed over the years as to why popular demographic theories are grossly over-simplified forecasting tools,” it says.

“What’s more, the short-term cyclical slowing that has been forecast by many to have occurred by now has also failed to hit the mark. In fact, average monthly housing starts were slightly stronger in the second half of 2002 than in the first half. When coupled with December’s surge in new vehicle sales to 18.3 million units, the strongest level since the summer months, a persistent slowing in key elements of the appetite of the U.S. consumer remains just a forecast,” RBC concludes.

“The U.S. housing market remains strong, aided by mortgage rates that remain close to generational lows. But, given waning consumer confidence and the weak job market, housing is not likely to provide as much support to economic growth in 2003 as it did last year,” concludes BMO.