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Friday, June 16, 2017

Comments on May Housing Starts

by Calculated Risk on 6/16/2017 12:54:00 PM

Earlier: Housing Starts decreased to 1.092 Million Annual Rate in May

The housing starts report released this morning showed starts were down 5.5% in May compared to April, and were down 2.4% year-over-year compared to May 2016.  This was a weak report and was well below the consensus forecast.

Note that multi-family starts are volatile month-to-month, and has seen wild swings over the last year - and has been especially weak over the last few months.

However, single family starts - although down in May compared to April - were up 8.5% year-over-year.

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

Starts Housing 2015 and 2016Click on graph for larger image.

Starts were down 2.4% in May 2017 compared to May 2016, and starts are up 3.2% year-to-date.

Note that single family starts are up 7.2% year-to-date, and the weakness (as expected) has been in multi-family starts.

My guess is starts will 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 been generally catching up (more deliveries).  Completions lag starts by about 12 months.

I think the growth in multi-family starts is 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 following the recession, and now I expect a few years of increasing single family starts and completions.