And in terms of “housing shortage” or “underconstruction?” Well, we’ll just go ahead and sink this meme.
By Wolf Richter for WOLF STREET.
The total numbers are somewhat dismal: Housing starts for all types of private housing – single-family homes and units in multi-family buildings – fell 8.1% in September compared to August, and 7.7% d year-over-year at a seasonally adjusted annual rate (SAAR) of 1.44 million housing units, according to the Census Bureau today.
These initial estimates tend to be significantly revised up or down and are highly volatile. For example, in August, these housing starts had climbed by a revised 13.7% compared to the previous month, after a real plunge in July. The September drop only partially offset the August jump.
But there are important trends underway that these month-to-month highs and lows distract from:
- A boom in multi-family housing starts (condos and apartments) to heights not seen during the multi-family bubble of the 1980s;
- A slump in single-family housing starts that began in April when mortgage rates began to soar.
I will show these trends by converting volatile month-over-month data to three-month moving averages (3MMA).
The three-month moving average (3MMA) of housing starts for all types of private housing fell 3% in September compared to August, 6.9% compared to a year ago and 8.6 % from a recent high in late 2020, at 1.46 million housing starts (SAAR), the lowest since October 2020. Residential construction turned around in April and hasn’t looked back since.
The purple line reflects the average annual increase in the number of households from 2000 to 2020 to shed light on the so-called “housing shortage” and the so-called “underconstruction”.
In terms of “housing shortage”, well…
The real estate industry uses the term “housing shortage” to justify house prices that have reached ridiculous levels, which has created the bizarre world where there is now a shortage of houses that people can actually afford to rent. or buy, but an overabundance of homes people can’t afford. If you have a lot of money, you can rent and buy a lot of houses and leave them vacant if you want.
It turns out there is no housing shortage, just the prices have been inflated beyond recognition. And some people are trying to get tax benefits by converting their vacant homes into vacation rentals.
Regarding the purple line above: housing starts lagged household growth only from 2008 to 2015. outpaced the growth in the number of households. And in 2020, the number of households actually fell, even as housing starts soared.
The plunge in single-family construction:
Single-family home starts fell 4.2% in September from August, and plunged 17% from a year ago, and 25% from the December 2020 peak, just 909,000 homes (SAAR, 3MMA), the lowest since July 2020.
Construction had peaked in December 2020 amid the mind-boggling free money boom orchestrated by the Fed’s QE and 0% interest rate policy, and government efforts to throw as many trillions of dollars into as many directions as possible. And housing took part of it and exploded.
But in 2021, inventories of homes in various stages of construction began to pile up. And when mortgage rates began to soar earlier this year, demand began to wane.
Homebuilders are trying to offload massive inventory as demand tumbles and traffic from potential buyers slumps to Housing Bust 1 levels. Homebuilders said they will manage that inventory on both sides : by reducing construction and trying to stimulate sales in one way or another.
But even at the December 2020 peak, housing starts were well below the historic housing bubble boom 1 that created a huge amount of excess inventory that took years of household growth to unwind.
The boom in multifamily construction.
Starts of multi-family buildings with two or more units, such as condo buildings and apartment buildings, fell less than 1% in September from August, to 551,000 units (SAAR, 3MMA). It was 18.6% more than a year ago!
Over the past six months, housing starts have been between 477,000 and 632,000 units (SAAR, single months, not 3MMA), the highest range since the multifamily housing bubble of the 1980s, which began to unravel in 1986.
In many densely populated cities and urban centers, multifamily is about the only type of housing being built, such as in San Francisco, Boston, Manhattan, etc.
In San Francisco for example, there are currently 69,3654 homes in various stages of the development pipeline, and almost all of them are in multi-family buildings, many of them on land for redevelopment: Candlestick Park/Hunter’s Point Shipyard, Treasure Island, Parkmerced , Potrero Power Plant, Pier 70, etc., in addition to numerous replacement projects.
In big cities, this has been the trend for years, and people can choose where they want to live: in a new house further away, in an older house in town, or in a new or old condo or apartment there. where it is most convenient for them.
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