Wednesday, October 18, 2017

Comments on September Housing Starts

by Bill McBride on 10/18/2017 12:15:00 PM

Earlier: Housing Starts decreased to 1.127 Million Annual Rate in September

The housing starts report released this morning showed starts were down 0.8% in September compared to August (August was revised up slightly), and starts were up 6.1% year-over-year compared to September 2016.  This was below the consensus forecast, but some of the weakness was in the south - probably due to hurricane Harvey.

This first graph shows the month to month comparison between 2016 (blue) and 2017 (red).

Starts Housing 2016 and 2017Click on graph for larger image.

Starts were up 6.1% in September 2017 compared to September 2016 (an easy comparison), and starts are up only 3.1% year-to-date.

The comparisons in Q4 will be more difficult.

Note that single family starts are up 9.1% year-to-date, and the weakness (as expected) has been in multi-family starts.

My guess was starts would increase around 3% to 7% in 2017.

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 turned down recently.  Completions (red line) have lagged behind - but completions have almost caught up to starts (more deliveries). 

Completions lag starts by about 12 months.

As I've been noting for a couple of years, the growth in multi-family starts is behind us - multi-family starts peaked in June 2015 (at 510 thousand SAAR).

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 following the recession, and now I expect a few years of increasing single family starts and completions.