December Housing Starts: Record Number of Housing Units Under Construction

Housing Starts Decreased to 1.382 million Annual Rate in December

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately‐owned housing starts in December were at a seasonally adjusted annual rate of 1,382,000. This is 1.4 percent below the revised November estimate of 1,401,000 and is 21.8 percent below the December 2021 rate of 1,768,000. Single‐family housing starts in December were at a rate of 909,000; this is 11.3 percent above the revised November figure of 817,000. The December rate for units in buildings with five units or more was 463,000.

An estimated 1,553,300 housing units were started in 2022. This is 3.0 percent below the 2021 figure of 1,601,000.

Building Permits:
Privately‐owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 1,330,000. This is 1.6 percent below the revised November rate of 1,351,000 and is 29.9 percent below the December 2021 rate of 1,896,000. Single‐family authorizations in December were at a rate of 730,000; this is 6.5 percent below the revised November figure of 781,000. Authorizations of units in buildings with five units or more were at a rate of 555,000 in December.

An estimated 1,649,400 housing units were authorized by building permits in 2022. This is 5.0 percent below the 2021 figure of 1,737,000.
emphasis added

Possibly Important: Multi-family permits averaged 536,000 SAAR over the last two months after averaging close to 650,000 SAAR over the previous 8 months. This decline in permits is a possible signal that the expected decline in multi-family starts has begun (although permits aren’t a perfect leading indicator for starts).

The first graph shows single and multi-family housing starts since 2000 (including housing bubble).

Multi-family starts (blue, 2+ units) decreased in December compared to November. Multi-family starts were down 14.9% year-over-year in December. Single-family starts (red) increased in December and were down 25.0% year-over-year.

Note that the recent weakness has been mostly in single family starts (red).

The second graph shows single and multi-family starts since 1968. This shows the huge collapse following the housing bubble, and then the eventual recovery - and the recent collapse in single-family starts.

Total housing starts in December were above expectations, however, starts in October and November were revised down, combined.

The third graph shows the month-to-month comparison for total starts between 2021 (blue) and 2022 (red).

Total starts were down 21.8% in December compared to December 2021.  Total starts in 2022 were down 3.0% compared to 2021. Starts have been down year-over-year for eight consecutive months, and that streak will continue in early 2023 and I expect starts to be down significantly in 2023.

Record Number of Housing Units Under Construction

The fifth graph shows housing starts under construction, Seasonally Adjusted (SA).

Red is single family units. Currently there are 769 thousand single family units (red) under construction (SA). This was up slightly in December compared to November, but 59 thousand below the recent peak in April and May. Single family units under construction have peaked since single family starts are now declining. The reason there are so many homes under construction is probably due to supply constraints.

Blue is for 2+ units. Currently there are 943 thousand multi-family units under construction.  This is the highest level since December 1973! For multi-family, construction delays are probably also a factor. The completion of these units should help with rent pressure.

Combined, there are an all-time record 1.712 million units under construction.

Comparing Starts and Completions

Below is a graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12-month rolling total for NSA starts and completions.

The blue line is for multifamily starts and the red line is for multifamily completions. Builders are still starting more multifamily units than they are completing.  Multifamily starts (blue) should decline soon, and completions (red) should pick up soon.

The last graph shows single family starts and completions. It usually only takes about 6 months between starting a single-family home and completion - so the lines are much closer than for multi-family. The blue line is for single family starts and the red line is for single family completions.

The recent gap between starts and completions has disappeared since builders are now starting fewer single-family units - and completions (red) are increasing.

Conclusions

Total housing starts in December were above expectations, however, starts in October and November were revised down, combined. The recent weakness has been mostly for single family starts; however, it appears the expected decline in multi-family starts has begun. We were already seeing a slowdown in design for multi-family.

There are a record number of total housing units under construction due to construction delays, but the number of single-family housing units under construction is now declining. This means a large number of housing units will be delivered in 2023.

Yesterday, the National Association of Home Builders (NAHB) reported that builder confidence increased in December but is still at a very low level.

The Census Bureau reported that 1,553,300 housing units were started in 2022, and I expect to see a significant decline in total starts in 2023.