Tuesday, July 19, 2016

Comments on June Housing Starts

by Bill McBride on 7/19/2016 11:04:00 AM

Earlier: Housing Starts increased to 1.189 Million Annual Rate in June

The housing starts report this morning was above consensus, however there were downward revisions to the prior two months.  Also starts were down 2.0% from June 2015.  Still a decent report.

Once again the key take away from the Housing Starts report is that multi-family is slowing, and single family growth is ongoing year-over-year.

Starts Housing 2015 and 2016Click on graph for larger image.

This graph shows the month to month comparison between 2015 (blue) and 2016 (red).

Year-to-date starts are up 7.1% compared to the same period in 2015.  My guess was starts would increase 4% to 8% in 2016, and that still looks about right.

Multi-family starts are down 3.9% year-to-date, and single-family starts are up 13.2% year-to-date.

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 probably catch up to starts soon (completions lag starts by about 12 months).

I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts probably peaked in June 2015 (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, however - as I've noted before - I expect most of the growth will be from single family going forward.