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Tuesday, February 26, 2019

Comments on December Housing Starts

by Calculated Risk on 2/26/2019 11:32:00 AM

Earlier: Housing Starts Decreased to 1.078 Million Annual Rate in December

Total housing starts in December were well below expectations, and starts for October and November were revised down.

The housing starts report released this morning showed starts were down 11.2% in December compared to November (November starts were revised down), and starts were down 10.9% year-over-year compared to December 2017.

Single family starts were down 10.5% year-over-year.  This was the weakest month for single family starts since August 2016.

This first graph shows the month to month comparison for total starts between 2017 (blue) and 2018 (red).

Starts Housing 2017 and 2018Click on graph for larger image.

Starts were down 10.9% in December compared to December 2017.

Even with the year end weakness, total starts were up 3.6% in 2018 compared to 2017. The weakness at the end of 2018 has been blamed on higher mortgage rates (that have since come down to around 4.5%), the stock market volatility (since stabilized), trade and immigration policies (impacting foreign buyers), and the partial government shutdown (started in December, but mostly in January).

My sense is starts will pick up in Q1 compared to Q4 2018.

Single family starts were up 2.8% in 2018 compared to 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 for several years following the great recession - but turned down, and has moved sideways recently.  Completions (red line) had lagged behind - however completions and starts are at about the same level now (more deliveries). 

As I've been noting for a few years, the significant growth in multi-family starts is behind us - multi-family starts peaked in June 2015 (at 510 thousand SAAR) - however multi-family has picked up a little recently.

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 relatively low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect some further increases in single family starts and completions.