Tuesday, June 18, 2013

Housing Starts: A few comments

by Bill McBride on 6/18/2013 02:11:00 PM

• Overall the housing starts report was a little disappointing with total starts at a 914 thousand rate on a seasonally adjusted annual rate basis (SAAR) in May. This was below the consensus forecast of 950 thousand SAAR.

• However starts are up significantly from the same period last year. Over the first five months of 2013, multi-family starts are up close to 40% from the same period in 2012, and single family starts are up 24%. Those are significant increases in activity. Based on permits and the June homebuilder confidence survey, I expect starts will increase further in June.

• Even with this significant year-over-year increase, housing starts are still very low. Starts averaged 1.5 million per year from 1959 through 2000, and demographics and household formation suggests starts will return to close to that level over the next few years. This suggests significantly more growth in housing starts over the next few years.

Here is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Click on graph for larger image.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing steadily, and completions (red line) are lagging behind. It is interesting that completions have lagged so far behind starts, and this suggests completions will increase significantly later this year (completions lag starts by about 12 months).

There will be a significant increase in multi-family deliveries this year.  However the level of multi-family starts over the last 12 months - almost to the level in late '90s and early 00's - suggests that future growth in starts will mostly come from single family starts.

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Starts are moving up and completions are following.  Usually single family starts bounce back quickly after a recession, but not this time because of the large overhang of existing housing units.

Note the low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.