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Single-Family and Multi-Family Housing Starts

Single Family Housing Starts Dead But Not Dead Enough – Multifamily Hot, But Not Too Hot

by Lee Adler, Wall Street Examiner

Housing starts rose in March. Most of the increase was in the multifamily sector. Single family starts remained at extremely weak levels, belying the much ballyhooed housing recovery. However, single family starts are getting a little ahead of the rate of sales. That could develop into a problem if new house sales don’t pick up, or if there’s a sudden increase in existing home inventory for sale.  The NAHB builder survey is not encouraging that March or April will show much of an increase new home sales.

The media reported the headline housing start numbers on a seasonally adjusted annualized basis as usual. That number came in at 1.036 million units versus the consensus of economic forecasters who expected 935,000.  The big underestimate is not surprising. Economic forecasting is fraudquackery, and the seasonally adjusted number in all economic data releases is pure fiction that’s virtually impossible to guess even by those with the best of intentions.

I only look at the not seasonally adjusted, actual data, and apply technical analysis to be able to see the trend. That way we can make intelligent judgments about whether the trend is on track, slowing, accelerating, or reversing. We usually can’t do that until months after the fact with seasonally adjusted representations.  Without looking at the actual data in graphical form, there’s no way to know whether the seasonally adjusted number accurately reflects the trend. Seasonally adjusted data is worthless from that perspective.

In looking at the actual data it becomes instantly clear that the gain in total housing starts is predominantly due to multifamily starts, which soared in March to a record level for that month in this century.

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The gain in single family starts was much less robust. 7,600 new single family units were started in March. That compares with the previous 10 year average of 16,400 in March, which included the bubble years. However,  the bubble had barely begun in 2003 and starts that year were 32,000 units in March. This year’s March starts were also below 2012′s 8,000 units and 2011, at 9,700. In fact, the only March which this year’s starts exceeded was March 2009, at the bottom of the housing collapse. Only 6,400 units were started in March 2009.

Any way you slice it, the number this March was terrible, and is clear evidence that while house prices are rapidly inflating thanks to easy, cheap money, the single family housing industry is hardly recovering. It’s really just dead in the water. Even with weak starts  sales have been even weaker than starts, resulting in a growing gap between starts and sales. If the March and April downturn in the NAHB’s builder survey is any indication, sales for the most recent two months won’t show any improvement and the gap between starts and sales will grow.

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While oversupply probably won’t be an issue because of the shortage of existing homes on the market, if that shortage goes away because a flood of foreclosures and REOs suddenly hits the market, builders will once again be faced with the problem of too many houses to sell, even at these rock bottom production levels.  The modest contribution that single family home construction is making to the economy would evaporate.

The big boom right now is in multifamily.

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Some pundits expressed concern yesterday that this market might be getting overheated. March was a record month for multifamily starts in this century, but the long term perspective indicates a market that has merely appeared to return to normal. The ratio of quarterly multifamily starts to gains in full time employment is within a normal range.

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The current level of multi family starts appears to be consistent with the current modest rate of job formation. This sector of the housing market should remain stable as long as job growth does not materially slow.  The condition of the single family market is a little more tenuous. Rising yields or slowing job growth could cause a more immediate negative response in that market.

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