Wednesday, January 20, 2016

Comments on December Housing Starts

by Bill McBride on 1/20/2016 10:11:00 AM

Earlier: Housing Starts declined to 1.149 Million Annual Rate in December

Total starts were up 10.8% in 2015 compared to 2014. My guess was for an increase of 8% to 12%.

Here is a table showing 1 unit and 5+ unit housing starts since the peak year in 2005.  This also shows the year-over-year change for both categories.  Single family starts were up 10.4% in 2015 compared to 2014.  Starts for 5+ units were up 12.5% compared to 2014.

Note that the year-over-year change for 5+ units is smaller in 2015, and will probably be even smaller in 2016.  Last year, after the June data was released, I pointed out that that might be the peak for the cycle (524 thousand SAAR in June 2015).  I expect multi-family starts to move more sideways going forward.

Starts and YOY % Change
Year1 unit% Change5+ units% Change

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

Starts were up year-over-year in 9 of 12 months in 2015. The year started slow - weather impacted starts in February and March - but overall growth was about as expected.

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 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 524 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.