Friday, December 16, 2016

Comments on November Housing Starts

by Bill McBride on 12/16/2016 11:59:00 AM

Earlier: Housing Starts decreased to 1.090 Million Annual Rate in November

The housing starts report this morning was well below consensus because of the sharp decline in multi-family starts. However multi-family permits were decent in November, so multi-family starts will probably rebound in December.

Meanwhile single family starts were decent, and there were upward revisions to the prior two months combined.   Just remember that multi-family can be very volatile ... no worries.

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 4.8% compared to the same period in 2015.  My guess was starts would increase 4% to 8% in 2016, and that looks right.

Multi-family starts are down 4.1% year-to-date, and single-family starts are up 9.6% 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 - but has started to decline.  Completions (red line) have lagged behind - but completions have been generally catching up (more deliveries, although this has dipped lately).  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.