The Scotsman Guide - Victor Whitman - 17 November 2016
Housing starts jumped dramatically in October to the highest level in a decade.
Overall starts for the month on an annualized basis reached 1.32 million, which was 25.5 percent higher than in September and 23 percent above the annual pace a year earlier, the U.S. Census Bureau reported.
Much of the gain was due to a 74 percent increase in multifamily building over a weak September level. Multifamily starts rose to an annual rate of 445,000 in October, up from 255,000 in September.
Analysts were more encouraged, however, by a nearly 22 percent year-over-year jump in single-family starts. Single-family starts were on an annual pace of 869,000 in October, up from 714,000 in October 2015. Single-family starts in October were also up nearly 11 percent for the month from the September level of 785,000.
“I think the real story here is the pop that we saw in single-family,” said Robert Denk, a senior economist with the National Association of Home Builders. Denk said that huge gain in multifamily starts merely represented a rebound off an unusually low September figure, and return to the average level over the past few months.
Single-family starts have steadily increased in recent months, but Denk said starts are still running well below the norm. Between 2000 and 2003 when market conditions were considered normal, for example, single-family starts averaged around 1.3 million.
Denk said it will probably be two or three more years before builders produce 1.3 million single-family homes annually. He also said he expects the overall number to fall a bit through the winter before increasing again next year.
“We are seeing a rebound in demand, but the builders are really facing supply constraints, the ability to meet that demand due to the lack of lots and labor out there,” Denk told Scotsman Guide News. “It will be sort of a tug of war between demand and returning supply to get the infrastructure for more accelerated production in place.”
Other economists were encouraged by the jump in starts.
“The choke point of the housing market's growth potential has been the lack of supply,” said Lawrence Yun, chief economist for the National Association of Realtors. He noted that overall starts haven't hit the 1.3 million threshold since 2007.
“Now that supply is improving, future price growth should taper a bit,” Yun added. “There is no oversupply threat and even more construction is still needed to help relieve housing shortage.”