Single-family housing starts dropped to a new post-pandemic low in October, data released Thursday showed.
The 855,000 annual rate was the slowest since May of 2020, when all markets, everywhere, were still distorted by virus containment efforts and associated economic tumult.
The figures are consistent with ongoing deterioration in builder sentiment, which notched an 11th straight monthly decline in November.
If the NAHB gauge is a good indicator, the pace of single-family projects will likely continue to recede in the face of an acute affordability crisis that threatens to halt buyer traffic.
The headline housing starts print beat estimates for October. The 1.425 million annual rate was marginally better than consensus. Notably, single-family completions dropped sharply. The 8.3% decline was the sixth-largest in eight years.
Permits beat. Like the headline starts print, the 1.526 million rate for permits was slighter better than economists expected, but nevertheless counted as the slowest since June 2020. Permits are still running well above the pace seen in the decade following the subprime collapse.
I still think the figure (below) looks ominous. Basically, it’s just a measure of backlogs, lagged, versus sales of new one-family houses.
That disparity has to correct. It looks to me like there’s a backlog of single-family projects against falling new home sales.
I haven’t the faintest idea what percentage of those authorizations represent projects that are already under contract. But, I’d suggest that in the event buyer traffic doesn’t pick back up, at least some projects will need to be canceled or, if they’re spec builds, the builders will end up forced to offer incentives, assuming the market hasn’t stabilized by the time they’re completed.
A lot of this is common sense. Midway through last year, I set about talking to industry folks (mortgage bankers, brokers and agents, both on the buyer and seller side) to ensure that my assessment of the housing market still reflects the realities of home buying and selling. That endeavor took on a new sense of urgency earlier this year, when mortgage rates began to rise, compelling me to dedicate more and more daily coverage to the housing market. As it turns out, common sense isn’t totally antiquated in housing, even if it is elsewhere.
I say that in the interest of reiterating that although my cadence may sometimes come across as unduly straightforward, I can assure you that I’m generally correct about US housing, where “correct” doesn’t necessarily mean I’m right that prices will eventually fall markedly, but rather that a lot of what I’ve said over the past six months has been unofficially vetted by people active in the market and whose livelihoods depend on it.
In any case, the starts data for October was mixed. But, the bias continues to be for a slowdown, and unlike other markets, housing as no choice but to “obey” the Fed, at least a little bit.
It’ll be interesting to see if the recent decline in yields and any attendant drop in mortgage rates helps bring buyers back to the market or whether disenchantment has thoroughly set in. My guess would be that any meaningful drop in financing costs will create a sense of FOMO among would-be buyers. Here’s hoping they aren’t sheep to the slaughter. If you lock in, say, 6% and only put 10% down, you better hope prices don’t promptly fall 10%. Be safe out there.
All of this is making me want to drive through the developments and see how things look these days. I know who the typical spec builders are, and can at the very least gauge activity for builders and developers. I do see land offerings that appear to have been passed on by the developers that had an eye on them.
If it lasts long enough – and why won’t it? – the collapse in house starts and sales should “help” loosen the labor market in coming months. Figure residential construction employs about 900K, real estate sales about 1.8MM, mortgage lending very roughly 300K, and assume a third of all those jobs are lost – that could be about 1.0MM cut from the job opening-to-unemployed gap.
Or maybe that will be 2X 1.0MM = 2.0MM cut from the gap? Since UE goes up +1.0MM and job opening goes down -1.0MM. In other words, the gap shrinks at 2X the rate of job loss? A question for those knowledgeable about economics, I guess.
I’m not sure how much or how quickly that will help with inflation, above and beyond the decline in housing price already captured in shelter CPI. People and jobs are not fungible, higher unemployment among rough framers and RE brokers won’t rapidly translate to a higher supply of nurse assistants and railroad engineers. Another question for economists.
It won’t be the good kind of loosening though as it’ll ultimately be self-defeating. The real estate and housing sector will be critical for keeping down housing costs in the long-term. If all those people leave the industry, we’ll once again be left with a massive housing shortage that drives prices way up. This is a situation where the real solutions lie outside of Fed policy, but because the Fed has a mandate to keep inflation in check and the government isn’t stepping in, the Fed will use their blunt tools and that’ll result in some very unfortunate dynamics in sectors like housing.
MFD (multi family dwelling) starts are very strong, at record levels. The housing winter is cold only for SFH (single family house). I think the supply of places for people to live may thus not be greatly upended. However, I think the supply of places for people to live and own will suffer. I see a headline that JPM is getting into the rental house game (with a $1BN investment in a JV in Atlanta). SFH are the last great asset class that is still mostly owned by ordinary people.
D1 “affordable” housing all spec activity at this time. Six city blocks paved and with utilities installed six lots with activity, but no framing up. National builder greatly reduced activity from normal for this time of year.
D2 higher than “affordable” national builder looks to have bought out the previous local developer more activity than D1 (not much) several dozen built spec houses with for sale signs advertising $5000 cash back. Greatly reduced activity for this time of year.
D3 affluent by my accounting. Building out the last corner of the last phase of the sprawling development where i cut my teeth in the wild west back in 2013. More local builders with specs for sale than with custom built. Normal activity level for this time of year, due in my opinion to the development almost being complete.
D4 very affluent large houses. No activity. Smart developers with most acreage left in sod. This developer for the extent of my time in the field auctioned off all new lots to what i perceived to be a select group of builders. Lots for sale signs all over place.
My bizzare neurological disability put an end to this endeavor quicker than i wanted, but such is life.