Tuesday, June 16, 2015

Comments on May Housing Starts

by Bill McBride on 6/16/2015 01:23:00 PM

Total housing starts in May were below expectations, however, overall, including the upward revisions to March and April, starts were solid.

There was also a significant increase for permits in May (mostly for the volatile multi-family sector). However I wouldn't put too much emphasis on permits.   The last time there was a spike in multi-family permits was in June 2008, and that was just before starts collapsed! Usually more is better, but I don't expect a huge surge in multi-family starts in June - I suspect this was just permit timing and starts will be spread out over several months.

Earlier: Housing Starts decreased to 1.036 Million Annual Rate in May

This first graph shows the month to month comparison between 2014 (blue) and 2015 (red).


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

Even with weak housing starts in February and March, total starts are still running 6.0% ahead of 2014 through May.

Single family starts are running 6.7% ahead of 2014 through May.

Starts for 5+ units are up 4.3% for the first five months compared to last 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) 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.

Whereas multi-family starts were only up slightly in May (NSA), mutli-family completions were up 60%!

Even with the surge in permits this month, 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.

A decent report.