Tuesday, August 16, 2016

Comments on July Housing Starts

by Bill McBride on 8/16/2016 08:59:00 PM

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• During the day, the AIA's Architecture Billings Index for July (a leading indicator for commercial real estate).

• At 2:00 PM, the FOMC Minutes from the July 26-27, 2016 Meeting.

Earlier: Housing Starts increased to 1.211 Million Annual Rate in July

The housing starts report this morning was above consensus, however there were downward revisions to the prior two months.  Still a solid report.

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

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

Year-to-date starts are up 6.7% 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 0.6% year-to-date, and single-family starts are up 10.6% 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 ...