Thursday, January 21, 2021

Comments on December Housing Starts

by Calculated Risk on 1/21/2021 11:26:00 AM

Earlier: Housing Starts increased to 1.669 Million Annual Rate in December

Total housing starts in December were above expectations, and starts in October and November were revised up. The single family sectors has increased sharply, but the volatile multi-family sector is down significantly year-over-year (apartments are under  pressure from COVID).

The housing starts report showed starts were up 5.8% in December compared to November, and starts were up 5.2% year-over-year compared to December 2019.

Single family starts were up 28% year-over-year.  Single family starts are at the highest level since 2006.  Low mortgage rates and limited existing home inventory have given a boost to single family housing starts.

The first graph shows the month to month comparison for total starts between 2019 (blue) and 2020 (red). A key point: Housing starts averaged 1.590 million SAAR in the three months prior to the pandemic. That is about the same as the last three months. 2020 was off to a strong start before the pandemic, and with low interest rates and little competing existing home inventory, starts finished the year strong.

Starts Housing 2019 and 2020Click on graph for larger image.

Starts were up 5.2% in December compared to December 2019.

In 2019, starts picked up at the end of the year - and were strong in early 2020 - so the comparisons for the next couple of months will be difficult - and then the comparisons will be easy in March, April and May.  Don't be surprised if starts are down year-over-year sometime over the next two months.

Starts were up 7.0%  in 2020 from 2019. This is close to my forecast for 2020, although I didn't expect a pandemic!

I expect starts to remain solid, but the growth rate will slow.

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 - then mostly moved sideways.  Completions (red line) had lagged behind - then completions caught up with starts- then starts picked up a little again late last year, but have fallen off with the pandemic.

Single family Starts and completionsThe last 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.

Single family starts are getting back to more normal levels, and  I expect some further increases in single family starts and completions on a rolling 12 month basis.