by Bill McBride on 9/20/2011 01:41:00 PM
Tuesday, September 20, 2011
Since it takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year - it makes sense that there will be a record low, or near record low, number of multi-family completions this year.
The following graph shows the lag between multi-family starts and completions using a 12 month rolling total.
The blue line is for multifamily starts and the red line is for multifamily completions. Since multifamily starts collapsed in 2009, completions collapsed in 2010.
Click on graph for larger image in graph gallery.
The rolling 12 month total for starts (blue line) is now above the rolling 12 month for completions (red line), and they are heading in opposite directions (although completions ticked up a little in August).
It is important to note that even with a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI). Still this is bright spot for construction.
Housing Starts and the Unemployment Rate
The following graph shows single family housing starts (through August) and the unemployment rate (inverted) through August. Note: there are many other factors impacting unemployment, but housing is a key sector.
You can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold.
Housing starts have moved sideways for the last two and a half years and this is one of the reasons the unemployment rate has stayed elevated.
With the huge overhang of existing housing units, this key sector hasn't been participating in the recovery. This is what I expected when I first posted the above graph over two years ago!
The good news is residential investment in multi-family and home improvement is increasing modestly, but construction job growth will remain sluggish until the excess housing supply is absorbed.
• Housing Starts decline in August