The start of the new year brought a chill to homebuilding as Housing Starts, which measure the start of construction on homes, fell 4.5% from December to January. More significantly, starts for single-family homes declined 4.3% from December and 27.3% from January of last year. Building Permits for single-family homes, which are indicative of future supply, also fell 1.8% for the month and 40% year over year. This is a disappointment because single-family homes are in such high demand among buyers and the data suggests ongoing tight supply will continue.

What’s the bottom line? Builders are on pace to complete 1.406 million homes this year, yet household formations are projected to total 1.9 million. This ongoing disparity between supply and demand should continue to be supportive of prices, especially when we see more hibernating buyers resume their home search. The dynamics in today’s market are very different from the housing bubble, where demand was waning but the supply of new homes was significantly increasing.