December dip in home starts doesn’t derail market’s momentum, but concerns remain

House home construction site prepDespite ending the year on an unexpected sour note, the U.S. housing market had its best year since 2007 in 2015.

According to preliminary data released from the Commerce Department, U.S. home starts fell 2.5 percent in December to 1.149 million. The dip came as a surprise to industry analysts especially after a strong Novemeber where starts increased 10 percent to 1.179 million.

Single-family home starts fell 3.3 percent during December to 768,000 while apartment starts fell 3.4 percent to 365,000.

Building permits, a good barometer of how the homebuilding industry is trending, also fell during December, down 3.9 percent to 1.232 million.

For the year, housing starts rose 10.8 percent above the 2014 figure to 1.1 million, the Comerce Department reports. Building permits finished the year at 1.2 million, a 12-percent jump over 2014.

Things aren’t exactly grim for the industry, but while starts have yo-yoed about over the last few months, homebuilder confidence has dropped a bit as concerns over the increasing cost of labor and lots linger.

The National Association Home Builders/Wells Fargo builder sentiment index has fallen to a reading of 60 in January. Any reading above a 50 indicates most home builders believe market conditions are good, but the index had risen as high as a 64 in October—a level not seen since the housing boom.

“After eight months hovering in the low 60s, builder sentiment is reflecting that many markets continue to show a gradual improvement, which should bode well for future home sales in the year ahead,” said NAHB Chairman Tom Woods, in a statement.

“January’s HMI reading is right in line with our forecast of modest growth for housing,” added NAHB Chief Economist David Crowe. “The economic outlook remains promising, as consumers regain confidence and home values increase, which will help the housing market move forward.”