Tuesday, March 18, 2014

A comment on Housing Starts

by Calculated Risk on 3/18/2014 01:41:00 PM

There were 123.5 thousand total housing starts in January and February this year (not seasonally adjusted, NSA), down 1% from the 124.8 thousand during the first two months of 2013.

Historically January and February are the two weakest months of the year for housing starts (NSA) due to winter weather - and the weather this year was especially severe - so I wouldn't read too much into the weak start for 2014.   Note: Permits were up 5% for the first two months of 2014 compared to 2013 - still weak growth, but positive.

I don't blame all of the recent weakness on the weather (probably just a small factor) - there are also higher mortgage rates, higher prices and probably supply constraints in some areas.   But I still think fundamentals support a higher level of starts, and I expect starts to pick up solidly again this year.

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) are lagging behind - but completions will continue to follow starts up (completions lag starts by about 12 months).

This means there will be an increase in multi-family completions in 2014, but probably still below the 1997 through 2007 level of multi-family completions.  Multi-family starts will probably move more sideways in 2014.

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.

Starts have been moving up, and completions have followed. 

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.