CALCULATEDRISK
By Bill McBride
Housing Starts Increased to 1.521 million Annual Rate in February
Note: The Census Bureau has not yet released the Length of Time from Authorization to Start and from Start to Completion, and I’ll send an update once it is released.
Housing Starts Increased to 1.521 million Annual Rate in February
From the Census Bureau: Permits, Starts and Completions
Housing Starts:
Privately‐owned housing starts in February were at a seasonally adjusted annual rate of 1,521,000. This is 10.7 percent above the revised January estimate of 1,374,000 and is 5.9 percent above the February 2023 rate of 1,436,000. Single‐family housing starts in February were at a rate of 1,129,000; this is 11.6 percent above the revised January figure of 1,012,000. The February rate for units in buildings with five units or more was 377,000.
Building Permits:
Privately‐owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 1,518,000. This is 1.9 percent above the revised January rate of 1,489,000 and is 2.4 percent above the February 2023 rate of 1,482,000. Single‐family authorizations in February were at a rate of 1,031,000; this is 1.0 percent above the revised January figure of 1,021,000. Authorizations of units in buildings with five units or more were at a rate of 429,000 in February.
emphasis added
The first graph shows single and multi-family housing starts since 2000 (including housing bubble).
Multi-family starts (blue, 2+ units) increased in February compared to January. Multi-family starts were down 34.8% year-over-year in February. Single-family starts (red) increased in February and were up 35.2% year-over-year.
Note that the weakness in 2022 and early 2023 had been in single family starts (red), however the weakness has moved to multi-family now while single family has bounced back from the bottom.
The second graph shows single and multi-family starts since 1968. This shows the huge collapse following the housing bubble, and then the eventual recovery – and the recent collapse and now recovery in single-family starts.
Total housing starts in February were above expectations and starts in December and January were revised up.
Last month, I noted that permits held up better than starts in January, and that housing starts were impacted by the severe weather in January. For February, permits and starts were at about the same level.
The third graph shows the month-to-month comparison for total starts between 2023 (blue) and 2024 (red).
Total starts were up 5.9% in February compared to February 2023.
Starts were up year-over-year for the third consecutive month, after being down year-over-year for 16 of the previous 18 months.
Multi-Family Housing Units Under Construction has Peaked
The fourth graph shows housing starts under construction, Seasonally Adjusted (SA).
Red is single family units. Currently there are 683 thousand single family units (red) under construction (SA). This was up in February compared to January, and 148 thousand below the pandemic peak in May 2022. Single family units under construction peaked in 2022 since supply chain constraints have eased.
Blue is for 2+ units. Currently there are 966 thousand multi-family units under construction. This is 35 thousand below the record set in July 2023 of 1,018 thousand. For multi-family, construction delays have been a significant factor, but it appears multi-family units under construction has peaked and will likely decline significantly in 2024.
Combined, there are 1.666 million units under construction, just 44 thousand below the all-time record of 1.710 million set in October 2022.
Comparing Starts and Completions
Below is a 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. Builders are now completing more multifamily housing units than they are starting on a 12-month basis. Multifamily starts will likely decline further on a rolling 12-month basis, and completions will increase over the next year.
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 than for multi-family. The blue line is for single family starts and the red line is for single family completions.
Builders are now completing more single-family homes than they are starting on a 12-month basis. However, single family starts have turned up on a 12-month basis.
Conclusions
Total housing starts in February were above expectations and starts in December and January were revised up. A strong report.
The weakness in 2022 and early 2023 was in single family starts. However, single family starts have now picked up sharply year-over-year, helped by limited existing home inventory. The bottom for single family starts was in November 2022 and single-family starts were up 35% year-over-year in February.
The expected weakness in multi-family starts began last summer, and we should see ongoing weakness in the sector based on less household formation, flat asking rents, rising vacancies, and tighter lending. We saw this coming in the National Multifamily Housing Council’s (NMHC’s) Quarterly Survey of Apartment Market Conditions and in the Architectural Billings Index that showed a decline in multi-family design for the 18th consecutive month in January.