Wednesday, March 16, 2016

Comments on February Housing Starts

by Bill McBride on 3/16/2016 04:30:00 PM

Earlier: Housing Starts increased to 1.178 Million Annual Rate in February

The housing starts report this morning was above consensus, and there were upward revisions to the prior two months - a strong report.  Starts were up 30.9% from February 2015, but February was especially weak last year (see the first graph).

The key take away from the report is that multi-family growth is slowing, and single family growth is ongoing.

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

The comparison for February was easy, and the year-over-year comparison will be easy in March too.

After March, I expect much less growth year-over-year.

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 continue to follow starts up (completions lag starts by about 12 months).

Multi-family completions are increasing sharply year-over-year.

I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts might have 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, but I expect less growth from multi-family going forward.