Friday, May 16, 2014

A few comments on Housing Starts

by Bill McBride on 5/16/2014 12:46:00 PM

The Census Bureau reported that housing starts increased 26.4 percent year-over-year in April to a 1.072 million seasonally adjusted annual rate (SAAR). A few points:

1) This is just one month of data (the usual caveat).
2) Most of the month-to-month increase was due to multi-family starts (Multi-family is volatile month-to-month).
3) Some of the increase appears to be payback from the severe weather earlier this year.
4) This was an easy year-over-year comparison since starts in April last year were near the low for 2013 (see first graph below).

Most of the commentary today is focused on the increase in multi-family starts - and that single family starts have stalled.  Yes, but going forward I expect multi-family starts to mostly move sideways and for single family starts to pickup (the opposite of most of the commentary).

There were 301 thousand total housing starts during the first four months of 2014 (not seasonally adjusted, NSA), up 6% from the 284 thousand during the same period of 2013.  Single family starts are up close to 2%, and multi-family starts up 17%.  The weak start to 2014 was due to several factors: severe weather, higher mortgage rates, higher prices and probably supply constraints in some areas.

It is also important to note that Q1 was a difficult year-over-year comparison for housing starts.  There was a huge surge for housing starts in Q1 2013 (up 34% over Q1 2012).  Then starts softened a little over the next 7 months until November.

Starts Housing 2013 and 2014Click on graph for larger image.

This year, I expect starts to be stronger over the next few quarters (I expect Q1 was the weakest) - and more starts combined with an easier comparison means starts will be up solidly year-over-year.


Below 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.

Multifamily Starts and completionsThe 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 - but completions will continue to follow starts up (completions lag starts by about 12 months).

This means there will be an increase in multi-family completions in 2014, but probably still below the 1997 through 2007 level of multi-family completions.  Multi-family starts will probably move more sideways in 2014.

Single family Starts and completionsThe 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 have been moving up (but the increase has slowed recently), and completions have followed. 

Note the exceptionally 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.

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