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Thursday, August 16, 2012

Comment on Housing, and Starts and Completions

by Calculated Risk on 8/16/2012 02:57:00 PM

This is a very important year for housing and for the economy. The budding recovery for housing starts and new home sales is positive for GDP and employment. Even though housing starts are increasing, it is from a very low level, and 2012 will still be one of the worst years for housing starts (only 2009, 2010, and 2011 will be worse). But that is good news for the economy: housing starts are on pace to be up 20% from last year (how many sectors are growing 20% this year?), and housing starts could double again over the next several years.

This reminds me of the recovery for auto sales. Auto sales bottomed in February 2009 at close to a 9 million annual sales rate. Now auto sales are running at a 14 million pace; over a 50% increase. That strong increase in auto sales really contributed to GDP growth over the last few years, see from Cardiff Garcia at FT Alphaville: Car-driven GDP growth.

Now we are starting to see a rebound for housing. And housing will have an even larger impact on GDP and employment growth than autos; and housing will probably double from here (more than the 50% increase for autos). Even with the downside risks from Europe and the fiscal cliff, this suggests more growth in the medium term (policy mistakes in the US and Europe are probably the biggest economic risk).

Through July, single family starts are on pace for over 500 thousand in 2012, and total starts are on pace for about 730 thousand. That is up from 431 thousand single family starts in 2011, and 609 thousand total starts. Starts are running above the forecasts for most analysts (however Lawler and the NAHB were close).

But even with the increase in starts, completions will be near record lows again in 2012. Here 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 completionsClick on graph for larger image.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing steadily, and completions (red line) is lagging behind - but completions will follow starts up over the course of the year (completions lag starts by about 12 months).

This means there will be an increase in multi-family deliveries next year.

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. Completions have barely turned up, but will increase over the next several months.

For the sixth consecutive month, the rolling 12 month total for starts has been above completions - that usually only happens after housing has bottomed.

Earlier on housing starts:
Housing Starts declined to 746 thousand in July
Quarterly Housing Starts by Intent compared to New Home Sales
• On Yahoo Daily Ticker: Housing Starts Jump 20% in One Year: Recovery Ahead, Says Bill McBride (Note: Doing the interview was a little more difficult than I expected. The room was mostly dark except the lights in my face. There was a green screen behind me, and I couldn't see Aaron.