Today’s census reported that housing starts came in at 1,530,0000, which the headline was a beat from estimates due to the strength we saw in the single-family starts. The housing game’s name is keeping monthly supply low in the new home sales market place, so single-family starts can grow more prominently than what we saw from 2008-2019.
From Census: https://www.census.gov/construction/nrc/pdf/newresconst.pdf
Building Permits Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,545,000. This is virtually unchanged (±1.3 percent)* from the revised September rate of 1,545,000, but is 2.8 percent (±1.6 percent) above the October 2019 rate of 1,503,000. Single-family authorizations in October were at a rate of 1,120,000; this is 0.6 percent (±1.0 percent)* above the revised September figure of 1,113,000. Authorizations of units in buildings with five units or more were at a rate of 365,000 in October.
Housing Starts Privately-owned housing starts in October were at a seasonally adjusted annual rate of 1,530,000. This is 4.9 percent (±11.1 percent)* above the revised September estimate of 1,459,000 and is 14.2 percent (±8.8 percent) above the October 2019 rate of 1,340,000. Single-family housing starts in October were at a rate of 1,179,000; this is 6.4 percent (±8.7 percent)* above the revised September figure of 1,108,000. The October rate for units in buildings with five units or more was 334,000.
If you want more housing construction, it needs to be driven by single-family starts. Multifamily construction has its limits; this means that unless we push for deficit financing to try to overbuild homes, it’s all about new home sales.
We want to keep this as simple as possible. The builders are high on confidence because monthly supply levels are finally at a point unlike what we saw from 2008-2019 to warrant such enthusiasm.
From Advisor Perspective
Like most economic data, housing data will moderate over time! Trust me; this will happen. However, the key to this confidence is this chart.
As long as the monthly supply levels stay below 4.3 months, the builders will be delighted; things are good between 4.4 – 6.4 months. Anything above 6.5 months, the builders will pull back. However, for now, things look excellent from the builder’s side of the things.
Purchase application data is still showing its 20% growth trend for 26 straight weeks now. This data will moderate too in time. Remember, this looks out 30-90 days, and the last four weeks look like this.
Total volumes typically fall after May have stayed high due to the makeup demand we have due to the lost nine weeks of Covid19. However, we are starting to see the start of the seasonality volumes now in the data. As always, you want to only focus on the year over year data.
From Calculated Risk:
Will the Covid19 case surge impact housing this time around like it did in March and April? Not likely, and I address that here in my recent article with Housing Wire.
All and all, housing starts are up 6.7% years to date even with the global pandemic, and this shouldn’t be too much of a surprise as mortgage rates are low and years 2020-2024 have the best housing demographic patch ever recorded in our history. As long as you think of this as a steady, stable replacement demand, you will be in the right place. When mortgage rates rise, the storyline will be different; we just aren’t there yet.
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.