Today’s census reported that housing starts came in at 1,547,0000, which the headline was a slight beat from estimates. Housing permits looked solid in this report, the most since September of 2006. The housing market story is about keeping monthly supply low in the new home sales market place, so single-family starts can grow more prominently than we saw from 2008-2019.
From Census: https://www.census.gov/construction/nrc/pdf/newresconst.pdf
Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,639,000. This is 6.2 percent (±1.5 percent) above the revised October rate of 1,544,000 and is 8.5 percent (±1.8 percent) above the November 2019 rate of 1,510,000. Single-family authorizations in November were at a rate of 1,143,000; this is 1.3 percent (±0.8 percent) above the revised October figure of 1,128,000. Authorizations of units in buildings with five units or more were at a rate of 441,000 in November.
Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,547,000. This is 1.2 percent (±8.6 percent)* above the revised October estimate of 1,528,000 and is 12.8 percent (±11.3 percent) above the November 2019 rate of 1,371,000. Single-family housing starts in November were at a rate of 1,186,000; this is 0.4 percent (±7.9 percent)* above the revised October figure of 1,181,000. The November rate for units in buildings with five units or more was 352,000.
If you want more housing construction, it needs to be driven by single-family starts. Multifamily construction has its limits even though permits for that sector looked better in this report. This means that unless we push for deficit financing to try to overbuild homes, it’s all about new home sales.
I wrote about this very subject on HousingWire recently. People have been screaming about we need more building for over 10 years now, and it doesn’t ever go beyond the normal supply and demand balance in the new home sales market. There is a reason for that. I talked about how to grow supply in 2021 and said I doubt it will ever happen in the manner I discussed.
I 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. Like most economic data, housing data will moderate over time! Trust me; this will happen. However, the key to this confidence is this chart is all about monthly supply.
From Advisor Perspectives:
As long as the monthly supply levels stay below 4.3 months, the builders will be delighted; things are ok 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. Monthly supply of new homes in year 2020 finally hit levels that would warrant record high enthusiasm.
Purchase application data is still showing 20%+ year over year growth trend for 30 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, I believe we are still making up for the lost demand in the existing home sales market. If we don’t close the year between 5,710,000 – 5,840,000 existing home sales, then Covid19 did take demand off the table in 2020. This can be made up in 2021. That is how powerful housing data was in February before Covid19 hit us. One of the worst takes in 2020 is that people think this housing market is being driven due to Covid19; this party started before Covid19.
From Calculated Risk: https://www.calculatedriskblog.com/2020/12/mba-mortgage-applications-increase-in.html
All and all, housing data has performed exceptionally well even with the global pandemic, and this shouldn’t be too much of a surprise as mortgage rates are low. The 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 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.