- Jonathan Poyer
Housing Starts On the Rise...But Not Completions
Housing start data from March 2022 is available and it is worth investigating.
Through March, we are seeing a seasonally adjusted annualized rate of 1.793 million homes. This is the highest since June 2006.
This is “good news” relatively speaking as we need to see an increase in supply to keep up with demand. This seems to be the only way to keep prices from continuing to blast off.
But just doing some back of the envelope calculations, looking at our previous post about how expensive it is to build a home, I am guessing that these builds are all in the upper tiers of the market. There is still no way that lower-tier homes are being built given that home prices are up about 34% since the start of the pandemic.
Another thing to look at is how consumers are looking at this market. Here, I am seeing some oddities:
Fannie Mae asked whether it is a good or bad time to buy on its April 2022 National Housing Survey and only 19% of respondents were positive! 76% said it was not.
73% of respondents expect continued increases in mortgage rates, while only 5% said they would decline and 18% think that they will remain the same. Lastly, many consumer expect home prices may have peaked with 44% predicting further gains, down from 48% in March, while 28% think they may even go down.
So, how have housing starts moved while considering mortgage rates?
The short-run part of the graph is not nearly as interesting as the analysis over the past 50 years. The trend analysis is a tick wonky but we presume that as rates rise, housing starts will shift dramatically towards the highest tiers and the volume would not be as high as historically starts have been across tiers.
There were a few more interesting data points from the Census Bureau information:
This chart is very interesting: permits are up, starts are up, but completions are about flat and have been about the same as measured in thousands of units for the past 5 years.
In fact, completions in March are below February. Single-family housing completions in March were at a 6.4% rate below the February rate.
We continue to follow whether folks are locking in permits and starts now in anticipation of supply issues and inflation prices in the future. As material and labor costs go up, it would be wise for consumers to purchase materials now. But we would anticipate seeing that as the costs to builders increase, they would delay completions as they seek to make up costs from consumers.
There are so many macro variables at play. On the one hand, it is good to see builds going up. On the other, it depends in what tiers are being built and whether folks are buying. Of course it is a great market to sell…but then, where are folks going to live?