Today census reported on housing starts, which the headline was a miss from estimates due to the weakness in the multifamily sector. However, single-family starts still showing growth, which is the critical data line for this sector going out this decade.
From Census: https://www.census.gov/construction/nrc/pdf/newresconst.pdf
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,470,000. This is 0.9 percent (±1.4 percent)* below the revised July rate of 1,483,000 and is 0.1 percent (±1.5 percent)* below the August 2019 rate of 1,471,000. Single-family authorizations in August were at a rate of 1,036,000; this is 6.0 percent (±1.3 percent) above the revised July figure of 977,000. Authorizations of units in buildings with five units or more were at a rate of 381,000 in August.
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,416,000. This is 5.1 percent (±9.6 percent)* below the revised July estimate of 1,492,000, but is 2.8 percent (±10.3 percent)* above the August 2019 rate of 1,377,000. Single-family housing starts in August were at a rate of 1,021,000; this is 4.1 percent (±8.7 percent)* above the revised July figure of 981,000. The August rate for units in buildings with five units or more was 375,000.
As you can see below, if you want more housing construction, it needs to be driven by single-family starts. Multifamily construction has its limits, as you can see, post-2015 and the data can be wild month to month.
From Calculated Risk:
One of my long term housing calls has been that housing starts will never start a year at 1,500,000 until 2020-2024. There never was an inventory crisis in the minds of the builders that they would purposely oversupply the housing market and destroy their margins. This is the world we live in; the builders build off their demand curve, not what housing pundits want them to do. The years 2008-2019 has the weakest new home sales recovery ever, so naturally, housing starts would have the weakest recovery.
This is a crucial factor to remember; in previous decades, the builders had a less existing home supply for the builders to compete with. After many decades of building homes, the builder’s main competition is the existing home sales market, and those homes are cheaper and have a geographical advantage over the more expensive new home.
The monthly supply for new homes in the previous expansion was always higher than any period between 1996-2005. So, you can understand why the builders grew starts slow and steady. We had two times in the last expansion where demand got hit when the 10-year yield went above 2.62%. In 2018, the monthly supply of new homes was so high that it took the entire year of 2019 to work off that excess supply, thus leading housing starts to be flat for the year. Suppose you want a lead indicator for housing starts since the low bar is done with. It’s the monthly supply chart for new homes, and right now, it looks great.
Be the detective, not the troll. In the future, you keep an eye on rising yields because this sector is susceptible to higher rates, and it no longer has a low bar to work with. The new home buyer is older and makes more money than the existing home buyer profile. So, the marginal home buyer does get hit with higher rates and can look for a cheaper existing home instead.
On another topic. My recent take on the myth of tight lending in America. I have tried my best to help my housing bear friends this year on this topic. It hasn’t worked that well, and for that, I am sorry, as some believe lending is tight.
I leave you with these charts from census: They speak for themselves and you can see a jump in the real median household income before Covid19.
From Census: https://www.census.gov/content/dam/Census/library/publications/2020/demo/p60-270.pdf
Logan Mohtashami is a Lead Analyst for Housing Wire, financial writer, and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami, now retired, was a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987.