by Bill McBride on 11/19/2014 03:58:00 PM
Wednesday, November 19, 2014
A few key points:
• Housing permits in October were at the highest level since 2008. Last year, in 2013, there was a surge in multi-family permits in October - and that was followed by an increase for starts in November. It looks like that might happen again this year.
• Multi-family completions have increased sharply (2nd graph below). Completions are what matter for apartment market supply, and with more completions it appears that the apartment vacancy rate has reached bottom and even increased a little (but still low). More apartments on the market will probably mean higher vacancy rates and less upward pressure on rents.
• Single family starts are increasing, but are still extremely low (last graph below). As we've been discussing for several years, demographics have been very favorable for apartments (and the housing bust boosted apartments too). However, looking forward, the demographics will become more favorable for home ownership. This is a positive for single family housing and for the overall economy.
On starts: There were 848 thousand total housing starts during the first ten months of 2014 (not seasonally adjusted, NSA), up 9.6% from the 774 thousand during the same period of 2013. Single family starts are up 5%, and multifamily starts up 20%. The key weakness has been in single family starts.
The following table shows the annual housing starts since 2005, and the percent change from the previous year (estimates for 2014). The housing recovery has slowed in 2014, especially for single family starts. However I expect further growth in starts over the next several years.
|Housing Starts (000s) and Annual Change|
|1Estimate for 2014|
This graph shows the month to month comparison between 2013 (blue) and 2014 (red). Starts in 2014 have been above the same month in 2013 for seven consecutive months.
Click on graph for larger image.
The year-over-year growth will slow in November and December because the comparisons will be more difficult. However it does appear (based on permits) that starts will finish the year strong (like in 2013).
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.
The blue line is for multifamily starts and the red line is for multifamily completions.
The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months).
Multifamily completions were up more than 50% year-over-year in October, but multi-family starts were down slightly year-over-year (starts are volatile month-to-month).
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.
Single family starts are moving up again on a rolling 12 months basis.
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.