For the fourth consecutive month, housing stats provided a wild ride. For December, starts rose 11.3%, but that was thanks to a 57% jump in multi-family.
Mortgage News Daily reports Construction Starts Bounce Back, Permits Remain Constrained.
Housing starts continued their see-saw pattern in December, rising 11.3 percent from November when they had fallen significantly after a sensational October. The increase this time, however, was due solely to a surge in multi-family construction. Meanwhile, housing permits turned in another lackluster performance.
The U.S. Census Bureau and the Department of Housing and Urban Development reported that residential housing starts were at a seasonally adjusted annual rate of 1,226,000 in December, up from a revised rate of 1,102,000 in November. The November estimate was originally reported at a rate of 1,090,000. The December estimate put housing starts up 5.7 percent from the level in December 2015.
Single-family housing starts were at a rate of 795,000, a decline of 4.0 percent from the November figure of 828,000 and 3.9 percent higher than a year earlier. There was an increase of 53.9 percent in unit starts in buildings with five or more units, to an annual rate of 417,000 compared to 271,000 in November. Multi-family starts are running 10.3 percent ahead of the December 2015 level.
Starts vs. Permits
Although it takes a permit to do a start, potential long delays between the two makes speculation over permits risky.
I discount permits in favor of starts as the latter takes a commitment from an owner while the former reflects builder optimism.
Single Family Starts
The above chart puts a much-needed perspective on mainstream media and realtor cheerleading.
Single-family housing starts are at or below levels seen in eight of the last eight recessions. Starts barely moved during the 2001 tech-led led recession.
Curiously, at no point in the 1960 recession were starts as low as they are today.
What’s Going On?
Demographics, affordability, and attitudes of millennials all come into play.
- Retiring boomers downsize
- Home prices are not affordable
- Millennials have far different attitudes towards debt, housing, family formation, and mobility than their aging parents
Point number 3 is the key driving force.
Mike “Mish” Shedlock
Tons of multi-family being built in my town. I guess the big boys have no problem getting a loan at a low enough rate to make a spread.
One factor, I think, is availability of gov sponsored OPM grants. Dense housing makes mass transit viable which gets people out of cars and Saves The Planet. We’re seeing masses of tall buildings going up in many cities near me: Cupertino, Mtn View, San Jose and Sunnyvale…doubtless others.
Right O/T, so apologies beforehand.
UN security council backs ECOWAS, Senegalese troops declare have entered The Gambia.
Anyone have any idea what support Jammeh has domestically and abroad?
How about rampant investor speculation in housing? It was bad enough in Housing Bubble 1.0 to be made worse in version 2.0
Had a friend who moved cities, sold his house to a foreign investor, and rented one from a foreign investor.
Or maybe developers (investors in another sense) have had a hand in adjusting the market somehow:
“The real estate development industry was transformed by the housing boom and the housing bust. Nearly all the small and medium-sized developers were wiped out, and now the industry is dominated as never before by a few giant, publicly -traded corporations. When they do residential development, they build virtually nothing except CIDs. They are national or international firms that are able to dictate terms to small suburban municipal governments, as in “take it or leave it–we do it our way or we go someplace else.””
http://privatopia.blogspot.com/2016/03/housing-starts-never-recovered-from.html
Good point. If foreign money is moving into real $ assets.
Saying the same thing in another way, the baby boomers who peaked in 1991 are now 25. The age of family formation keeps moving further out, so when they do move out of mom and dad’s house, they are going into apartments. Typically people don’t buy homes until at least a few years after they get married. With the average marriage age at about 28, if I recall correctly, they will be about 31 before buying a home. The boom in apartment building indicates they are finally moving out of their parent’s homes, so give them 5-6 years, and we’ll see more of them buying homes. In the meantime, the homes from downsizing by baby boomers, and their parents will free up most of the needed homes.
Maybe with only part time employment opportunity for 8 years you can only afford renting?
Increasing costs due to land, labor, materials, permits and building codes have made it impossible to build starter homes in many cities.
“Cities”
You identified the problem right there.
I know that in other countries vast amounts of housing is taken off the market just to maintain prices, is packaged and traded for various reasons and ends… to the point of encouraging/allowing further new builds. Not sure if that goes on in the US.
Continuous below real inflation rate interest rates makes all statistics fake and unreliable, but the good thing is; they are more reliable than the forecasts.
Mish every month or so i drive by one major city and to another major city with a international airport. It always amazes me the little towns I pass have car lots with more cars and trucks than people who live n these communities. Also there is a 20 mile area near both cities and the airport where they keep throwing up new apartment complexes by the dozens and this has been going on for years with no end n site.
Phone booth construction would be strong as well, if those who happened to own a phone 25 years ago were allowed to ban anyone else in their county from buying their own.
The stooges who got suckered into going half a million into debt for a 50k to construct shack, are now “potecting their poppeti vaijues ” the way their bankster massa has told them to: By doing their darndest to prevent other people from being able to obtain a decent place to live.
At this stage of the cycle/fiasco builders are having an increasingly difficult time bringing new product to market that buyers actually want to pay for or can afford, no surprise when everything under the sun has been artificially inflated. Builders need rates under 4 percent to achieve or maintain any momentum in sales growth at this point, and the path of least resistance for that to happen is economic weakness/recession.
It’s the ultimate catch-22, fueled by Fed’s blatant mismanagement of the economy of course.
Affordability seems the biggest reason to me. If half of the working people make less than $35,000 a year that would make affordable housing in the range of $70,000 tops and that seems very high to me. I have always considered reasonable and affordable around $25,000 to $30,000.
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As Crysangle said above, giant corporations are building condos for foreign buyers. These buyers don’t live in the units. They are buying them for speculation, parking their money offshore, hoping to gain price appreciation. Don’t expect to get statistics on this; it’s a well-kept secret. But these buyers push prices up for everyone, and the domestics end up renting off them (because they now can no longer afford to buy). These foreigners aren’t concerned with interest rates; they’re paying cash.
So the foreigners are looking for a place to park their money, the developers are getting rich, prices go up, and the domestic, born in the U.S.A. population can’t afford to buy any longer. Talk about screwing your own citizens in order to grease the pockets of your campaign contributors (the big corporations).
Great little game if you can get it.
I’m not an expert in realty dynamics, but I have seen in person what we are talking about played out many times, and in many ways, from restricted planning forcing up land through to exorbitant prices due to outside investment. I had a quick look for some US stats. and figure 1 at
https://www.census.gov/housing/hvs/data/charts.html
shows both rental and homeowner vacancy rates decreasing since 2008. Maybe someone can explain that to me as I can’t figure it … has US population boomed somewhere ?
Also http://www.realtytrac.com/news/foreclosure-trends/u-s-q1-2016-u-s-residential-property-vacancy-analysis/
notes “Investment properties accounted for 76.7 percent (1,044,599) of all vacant properties nationwide.” , could be second homes, but the take away for me in that is that people don’t leave their primary residence empty, seems a duh comment until you put it into the perspective of the relationship of price/use, and rental figures.
Cryangle – sure, they buy these properties, and then leave them vacant. They don’t need the money from rent. They’re buying purely on spec, plus they need somewhere to park their corrupt money. In my city, the foreigners don’t want renters because they ruin the place. They want to sell these suites in pristine/new condition. Few lights are on in the evening in these multi-story condos. One fellow said that his friend had bought 20 of them – 20! Of course they’re forcing prices up.
The renters get forced into older buildings, where vacancy rates are falling to practically zero, or into the foreclosed houses that the institutional investors bought up.
Witness similar this side of the pond. The local resident population has moved into low end, they just cannot afford. The overhang and new build sit empty, either witheld by finance/banks , in the hands of institutional investors for future sale/rent, or private investors but not for rent… empty.
It is very hard to get any real idea by looking at stats. US has roughly a million new households per year, and as many new starts, but that tells nothing of how ownership and rental are getting rearranged, especially as there was such an overhang of surplus. So it seems either new households are turning to older rental properties while new property goes to investment, or that established households are moving to rental and giving up ownership, or both. What is not happening is new households buying up a major share of new or higher quality property. The effect of this at social level is very profound, it is like stirring around the population and also relegating the locals, very destructive in my opinion.
Another relationship in the charts is that new starts peaked around 2007 and only bottomed in 2009, just as rental vacancies were at their peak.
http://www.tradingeconomics.com/united-states/housing-starts
There might be various reasons for that, but from a straightforward perspective it seems backwards… why start building when vacancies are at max. ? To me it just reinforces the view that the whole show has been managed this way top down.
One of the problems we’re seeing here in Vegas is that there is no inventory of affordable homes for the millennial/first time buyer. People clearly can’t afford to move up, which is leaving few starter homes available. On top of that, there is zero new construction of affordable homes. They’re all priced WELL above the median selling price for the area, even the smaller new homes are priced nearly $100k above the median! There are, however, apartments being built on every patch of available land, which of course is lowering the property values of all the surrounding homes.
Single family home supply should increase as retirees downsize into multifamily buildings in retirement community or sprawling assisted living centers. So fewer single family homes are needed.
Money. Millenials have no accumulated wealth to speak of. Many are burdened with student loans. Many cannot get decent jobs and cannot afford to pay rent and move away from their parents’ homes, much less afford a downpayment on a mortgage to buy a home. Many cannot afford health insurance, much less even think about having a family. Long story short, millenials have no money, and money has a major impact on demographics.