Another Outstanding Month for U.S. Housing Starts in October

11/20/2012 by Alex Carrick

The U.S. housing start figure in October at 894,000 units seasonally adjusted and annualized was outstanding.

The latest new residential construction information is contained in a joint press release from the Census Bureau and the Department of Housing and Urban Development.

October’s starts level was +3.6% versus September and +41.9% compared with October of last year.

September marked the first major leap forward in starts in the past several years, rising to 863,000 units from 750,000 units in August – a gain of more than 100,000 units.  

All of the month-to-month gain in October came from the multiples market (+11.9%), as single-family starts (-0.2%) were basically flat.

The average of monthly starts so far this year has been 759,000 units, an increase of 27.7% versus the January to October average last year of 594,000 units.

Average single-family starts so far this year are +23.9%, which is an impressive gain. Multiple unit starts, however, have done even better, at +37.2%. 

The share of total unit starts taken by singles in the latest month was 66.4%. The remaining 33.6% was comprised of multiples. In other words, singles were almost exactly two-thirds of the total and multiples, one-third.

There was advance indication that October’s starts level would be strong. Building permits, which lead starts by a month or two, were exceptionally high in September at 890,000 units.

In October, the permits series declined somewhat to 866,000 units. Therefore, starts might be expected to take a minor pause in November and/or December. 

Nevertheless, relative to 2009 through 2011, starts have clearly crawled out of the basement and stepped into the sunshine.

The foregoing isn’t to deny that starts still have a ways to go. They need to reach 1.5 million units and higher to approach their historical “norm”. Then they will satisfy housing demand based on such demographic factors as population growth and family formations.

Until recently, it’s been too easy to satisfy new housing demand from an excess of inventory provided by foreclosures. The market was clogged by a huge number of distressed properties that resulted from the sub-prime mortgage mess and the ensuing credit crisis.

Regionally, the West (+17.2%) led the month-to-month charge in housing starts in October, followed by the Midwest (+8.9%). Trailing behind, the Northeast (-6.5%) and the South (-2.5%) recorded declines.

On a year-to-date percentage-change basis, the West (+73.1%) has again been best, with the Midwest (+44.5%) and South (+34.3%) also solidly ahead. The increase in the Northeast (+10.8%) has been muted.

As for each region’s share of the total, keep in mind that the South accounts for about half, the West for about a quarter. That leaves the remaining 25% to be divided up between the Midwest and the Northeast, with the former at approximately double the proportion of the latter.  

So that’s the new homes market. What about existing homes? How are sales in that category faring?

The National Association of Realtors (NAR) reports that resales of single-family homes, townhouses, condos and co-ops increased 2.1% in October from September and 10.9% from last October.

The volume of resales is much greater than for starts. The seasonally adjusted and annualized rate of existing home sales in the latest month was 4.79 million units.

There was a minor negative impact in the Northeast region from Hurricane Sandy in the latest month. This will be felt more significantly over the next while, once there is a more thorough assessment of the damage caused to residential communities by the storm.

The median price for all existing homes sold in the latest month was $178,600. At +11.1%, this was a double-digit price increase year over year.

October marked the eighth month in a row of year-over-year price increases. The last time that occurred was between October 2005 and May 2006.

According to the NAR, the number-of-months inventory of existing homes for sale fell to 5.4 months in October. A year ago, the supply figure was 7.6 months at the then-current sales rate.

The availability of existing homes is at its lowest level since February 2006. 

Another variable in affordability besides price is the mortgage rate. Freddie Mac’s records indicate that a 30-year conventional fixed rate mortgage in October could be obtained for a record low 3.38%.

Credit conditions remain more stringent than in the past, however, and many prospective buyers are still experiencing problems with mortgage approvals.

The bottom line is that the improvement in the U.S. housing sector is very good news for the overall economy. Higher starts, improving resales and upward trending prices all contribute to better consumer confidence. 

U.S. monthly housing starts
U.S. monthly housing starts
Jan-Oct average 2011 = 0.594 million units;
Jan-Oct average 2012 = 0.759 million units (+27.7%).
U.S. Annual Starts:
2007 = 1.355 million units (-24.8%);
2008 = 0.906 million units (-33.1%);
2009 = 0.555 million units (-38.8%);
2010 = 0.587 million units (+5.9%);
2011 = 0.609 million units (+3.8%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.
U.S. and Canada: monthly housing starts
(seasonally adjusted at annual rates)
U.S. and Canada: Monthly housing starts
Data source: U.S. Census Bureau (Department of Commerce) and Canada Mortgage and Housing Corp. (CMHC).
Chart: Reed Construction Data - CanaData.
U.S. regional housing starts
U.S. northeast housing starts   
U.S. midwest housing starts     
U.S. northeast housing starts   U.S. midwest housing starts
U.S. northeast annual starts:
2010 = 71,600 units;
2011 = 67,700 units (-5.4%).
U.S. midwest annual starts:
2010 = 97,900 units;
2011 = 100,900 units (+3.1%).
Jan-Oct average 2011 = 65,800 units;
Jan-Oct average 2012 = 77,000 units (+17.0%).
Jan-Oct average 2011 = 96,700 units;
Jan-Oct average 2012 = 119,800 units (+23.9%).
U.S. south housing starts       
U.S. west housing starts        
U.S. south housing starts   U.S. west housing starts
U.S. south annual starts:
2010 = 297,500 units;
2011 = 307,800 units (+3.5%).
U.S. west annual starts:
2010 = 119,900 units;
2011 = 132,500 units (+10.5%).
Jan-Oct average 2011 = 303,800 units;
Jan-Oct average 2012 = 389,900 units (+28.3%).
  Jan-Oct average 2011 = 127,700 units;
Jan-Oct average 2012 = 171,900 units (+34.6%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.