Residential Construction Numbers: Get Real!

Reading through the news and blog articles (or usually just the headline!) about Tuesday’s release of the housing starts numbers (newresconst.pdf) will make someone think that May’s numbers were the signal of something big. I disagree. Linked above is the actual report from the Commerce Department so you can see the raw data for yourself and determine if my analysis is in line.

First, yes new housing starts were calculated to have jumped 17% from April, but a closer look at the numbers shows not a lot there. First, the margin of error is 14.4% in either direction. When you read the report you see the number in parentheses after any results. It looks like this: (±14.4%) and shows you how big of a guess is the reported number. Second, single family home starts were up only 7.5% with an error range of ±14.2%. The big jump was in multi-family starts which went from 70,000 to 124,000, April to May. Please note the multi-family number was 129,000 in March. The changes from April to May are just mostly noise and math error. The biggest thing to note is that homes are being started at a rate of 1/2 million per year and the number of new households formed in the U.S. is on the order of 1.5 million per year.

Until housing starts start clearing 7 figures again, any relative changes in these numbers will have little effect on the overall housing situation in the U.S. Over 800,000 units were completed in May, which is about the number started in September of 2008. Starts have been in the half million, plus or minus, range for about 6 month now and new permits have been at the same level for about the same amount of time. By early 2010, supply for new homes could be very tight if the economy is picking up and the public starts to feel confident about buying a home. If not then, the gap between future supply and demand will just continue to widen.

Comments

[kebu77:]

"Over 800,000 units were completed in May..."

In the last two years, completions have exceeded starts/permits by a cumulative 2 million or so (some months as much as 300k excess, only one month did starts/permits exceed completions).

Completions are what goes into the houses-for-sale inventory. They are still too high given high existing home inventory and withheld listings (shadow inventory). Many months still to go to reach a supply-demand balance and price bottom, esp. given rising unemployment.

Jun 18 12:28 PM