Wednesday, January 21, 2015

Comments on December Housing Starts

by Bill McBride on 1/21/2015 12:44:00 PM

Just over a year ago, in November 2013, housing starts were at a 1.091 million pace on a seasonally adjusted annual rate (SAAR) basis. (Since revised to 1.105 million).

That end of the year surge in 2013 led many analysts to push up their forecast for 2014 (see blue column for November 2013 in the first graph below).

It ends up not one month in 2014 was above November 2013 (as revised).  This is a reminder not to be influenced too much by one month of data.

That brings us to this morning: the Census Bureau reported that single family starts were at 728 thousand in December, the highest level since early 2008.  If single family starts just hold that level in 2015, annual single family starts would be up about 12% over 2014.  With more growth, 20% would seem possible.  However I think 20% is too optimistic (based on lots and pricing), and just like in 2013, we shouldn't let one month of data influence us too much.

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

This graph shows the month to month comparison between 2013 (blue) and 2014 (red).

There were 1.006 million total housing starts during 2014, up 8.7% from the 925 thousand in 2013.  Single family starts were up 4.9%, and multifamily starts up 17.1%.

The following table shows the annual housing starts since 2005, and the percent change from the previous year. The housing recovery 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
  TotalTotal
%
Change
SingleSingle
%
Change
20052,068.35.8%1,715.86.5%
20061,800.9-12.9%1,465.4-14.6%
20071,355.0-24.8%1,046.0-28.6%
2008905.5-33.2%622.0-40.5%
2009554.0-38.8%445.1-28.4%
2010586.95.9%471.25.9%
2011608.83.7%430.6-8.6%
2012780.628.2%535.324.3%
2013924.918.5%617.615.4%
20141,005.88.7%648.04.9%

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) 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).

Note that the blue line (multi-family starts) might be starting to move more sideways.

I think most of the growth in multi-family starts is probably behind us - although I expect solid multi-family starts for a few more years (based on demographics).

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.

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.