A Look Back At The Decade Of Housing Starts


For readers that have followed me over the years, they would know that I have taken a much different approach toward housing starts and new home sales this decade that the financial community.  These were my big two ideas.

“We simply don’t have enough mortgage buyers, once you exclude cash buyers from having a real recovery in housing.”

“We will never reach 1,500,000 total housing starts this decade its more of a 2020-2024 storyline.”

The reason I bring this up today is not to look back at the past to the housing nirvana that never happened. It was to look at the future.

What I have disagreed the most with the financial media and the housing community has been this thesis that we have a housing shortage and that the builders need to build more homes because of the lack of housing for the existing home sales market.

Builders build off domestic demand curve economics, not demographic models that assume their own product is on par with the existing home sales market.

Context with housing data is critical. This multiple decade trend of lower housing starts vs. the population looks right to me. The excess production in housing from 2002-2005 was warranted at that time because the housing bubble did create speculative demand that led to the financial crisis. However, that did not happen in this cycle even though this cycle has had.

– Longest economic expansion ever recorded in history
– Longest job expansion ever recorded in history
– A shallow mortgage rate cycle that hadn’t pushed above 5% for 9 years

From Doug Short:
December Housing Permits Pop adj

Going out now!

The most critical housing chart we have in America has always been the monthly supply chart, which was ignored by the financial community for way too long. As always, as long as the monthly supply of new homes stays below 6.5 months, we should be ok for growth. When we broke that level last year, we created a lot of excess housing supply that took a year to work off.  Even today, single-family starts are not a positive year to date.

From Fred: 

November Monthly Supply

What is suitable for PMI data isn’t great for housing if it facilitates the 10-year yield to go above 2.62%

Obviously, this year, the PMI and growth downtrends were a stimulus for housing, and we are still fighting our way to break that critical 1.94% level I have talked about since the inversion happened this year.

USA 2019 PMI Data
Stock Charts:

So just be mindful of housing if we ever breach above 2.62% on the 10- year yield.  This isn’t a crash housing thesis; it’s a rate of growth slowdown thesis which has happened twice in this record-breaking economic expansion. Now on to the report.

From Census: 

Building Permits
Privately‐owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,482,000. This is 1.4 percent (±1.4 percent)* above the revised October rate of 1,461,000 and is 11.1percent (±1.8 percent) above the November 2018 rate of 1,334,000. Single‐family authorizations in November were at a rate of 918,000; this is 0.8 percent (±1.3 percent)* above the revised October figure of 911,000. Authorizations of units in buildings with five units or more were at a rate of 524,000 in November.

Housing Starts
Privately‐owned housing starts in November were at a seasonally adjusted annual rate of 1,365,000. This is 3.2 percent (±10.0 percent)* above the revised October estimate of 1,323,000 and is 13.6 percent (±12.8 percent) above the November 2018 rate of 1,202,000. Single‐family housing starts in November were at a rate of 938,000; this is2.4 percent (±5.8 percent)* above the revised October figure of 916,000. The November rate for units in buildings with five units or more was 404,000.

Single-family starts are working its way back to cycle highs, while multifamily construction has relatively stayed flat for years now. To get to 1,500,000 total housing starts, which should happen in the years 2020-2024, we will need more single-family starts, which means more new home sales from here.

From Calculated Risk

Even though single-family starts are still negative 0.4% year to date, the trend which matters the most has gotten a lot better for this sector. As always, I have stressed to my housing friends, don’t overstate the velocity of growth in this sector, take the slow and steady approach.

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his facebook page https://www.facebook.com/Logan.Mohtashami and his a contributor for HousingWire.