Tuesday, October 20, 2015

Comments on September Housing Starts

by Bill McBride on 10/20/2015 01:32:00 PM

Total housing starts in September were above expectations, mostly due to an increase in the volatile multi-family sector.

However permits were down in September for multi-family (and down slightly year-over-year).

Earlier: Housing Starts increased to 1.206 Million Annual Rate in September

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

Starts Housing 2013 and 2014Total starts are running 12.0% ahead of 2014 through September.

Single family starts are running 11.0% ahead of 2014 through September, and single family starts were up 12.0% year-over-year in September.

Starts for 5+ units are up 14.8% for the first nine 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).

Multi-family completions are increasing sharply and are up 25% year-over-year.

I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts might have peaked in June (at 510 thousand SAAR) - 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.

The housing recovery continues, but I expect less growth from multi-family going forward.