Implications: The headline large drop in housing starts in October is highly misleading. Almost all the decline was due to multi-family starts, which fell a whopping 43.5%, the largest percentage drop on record for any month going back to 1959. It's important to remember that multi-family starts are extremely volatile from month to month. Despite the large drop in October, the 12-month moving average for multi-family starts is still in a rising trend. Meanwhile the demand for multi-unit dwellings is increasing due to ongoing foreclosures and the rise in rental occupancy. As a result, we anticipate a very large rebound in multi-unit construction over the next couple of months. It is important to recognize that starts are not falling due to excess inventories. Although excess housing inventories remain, they are dropping rapidly and will continue to decline even in the face of a substantial recovery in home building. True, many former "homeowners" (we use that term loosely after an era of zero down payments) are becoming renters, but rental properties require construction too. When you hear stories about a "wave of foreclosures" lifting inventories, remember that when someone leaves their home to rent somewhere else that overall housing inventories do not change. Meanwhile, single-unit starts have been essentially unchanged over the past four months, averaging 434,000 at an annual rate. Single-family starts fell 1.1% in October to a 436,000 rate. Single-family completions have been running higher than that and increased 2.7% in October, as home builders focus on completing the projects they've already begun.
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Posted on Wednesday, November 17, 2010 @ 9:43 AM
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