Comments on January Housing Starts

Earlier: Housing Starts decreased to 1.580 Million Annual Rate in January

Total housing starts in January were below expectations, and starts in November and December were revised down, combined. Single family starts decreased in January, but were still up sharply year-over-year – and excluding the last three months – were at the highest level since 2007. 
However, the volatile multi-family sector is down significantly year-over-year (apartments are under  pressure from COVID).
The housing starts report showed starts were down 6.0% in January compared to December, and starts were down 2.3% year-over-year compared to January 2020.

Single family starts were up 17% year-over-year.  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). 

Click on graph for larger image.

Starts were down 2.3% in January compared to January 2020.

A key point: Housing starts averaged 1.590 million SAAR in the three months prior to the pandemic. That is about the same as January 2021 (although the mix changed to more single family). 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.
The year-over-year comparison will be difficult again in February – and then the comparisons will be easy in March, April and May.  
Last month I noted "Don’t be surprised if starts are down year-over-year sometime over the next two months."   This small year-over-year decline in total starts was not a surprise.

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.

The 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.

The 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, but I still expect some further increases in single family starts and completions on a rolling 12 month basis.

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