Thursday, November 20, 2014

Housing Starts Predicted to be Almost 1,000,000 in 2014

According to Calculated Risk, yearly adjusted housing starts will be within shouting distance of 1,000,000. That's the good news. The not so good news is that single family housing starts are weaker than expected. There are plenty of reasons for it including fewer people wanting to buy the 'American Dream', climbing costs, fewer builders and tougher codes.

The following table shows the annual housing starts since 2005, and the percent change from the previous year (estimates for 2014). The housing recovery has slowed in 2014, especially for single family starts.  However I expect further growth in starts over the next several years.

Here are a few key points:

• Housing permits in October were at the highest level since 2008. Last year, in 2013, there was a surge in multi-family permits in October - and that was followed by an increase for starts in November. It looks like that might happen again this year.

• Multi-family completions have increased sharply. Completions are what matter for apartment market supply, and with more completions it appears that the apartment vacancy rate has reached bottom and even increased a little (but still low). More apartments on the market will probably mean higher vacancy rates and less upward pressure on rents.

• Single family starts are increasing, but are still extremely low. As we've been discussing for several years, demographics have been very favorable for apartments (and the housing bust boosted apartments too).  However, looking forward, the demographics will become more favorable for home ownership. This is a positive for single family housing and for the overall economy.

On starts: There were 848 thousand total housing starts during the first ten months of 2014 (not seasonally adjusted, NSA), up 9.6% from the 774 thousand during the same period of 2013.  Single family starts are up 5%, and multifamily starts up 20%.  The key weakness has been in single family starts.

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