U.S. Housing Starts in September Surprised and Delighted

10/19/2012 by Alex Carrick

U.S. home starts in September stunned almost everyone. At 872,000 units seasonally adjusted and annualized, they were the highest since July 2008’s 923,000 units.

The latest number was published in a joint press release from the Census Bureau and the Department of Housing and Urban Development.

September’s level of starts was the best in more than four years. July 2008 was on the cusp of recessions that lasted until mid-2009 in both the U.S. and Canada.

In the intervening period, U.S. home starts dropped as low as 478,000 units in April 2009. It’s been a long slow climb to improved respectability since then.

September’s national level was +15.0% month to month and +34.8% year over year.

Year-to-date in 2012, U.S. home starts have averaged 745,000 units. That’s an increase of 26.3% compared with the first nine months of last year.

Nor is the momentum waning. Residential building permits in the latest month were even higher at 894,000 units, an increase of 11.6% month to month and +45.1% year over year.

The permit series usually leads starts data. Permits were also above any level since July 2008.  

In the latest month, the multiples market surged ahead faster (+25.1%) than the singles market.

Single-family starts continued to account for a larger share of total starts, however, 69.2% compared with 30.8% for multiples.

In Canada, the respective shares are the opposite. September year-to-date single-family starts in Canada were 34.5% of the total, with the remaining 65.5% comprised of multiples.

Americans like their single-family homes. It may have something to do with their heritage. Vast regions of the U.S. were originally settled through successive waves of property grants. A fine structure nestled on a well-tended plot of land has been an abiding dream for many.  

Mortgage deductibility in the calculation of personal income taxes undoubtedly plays a role as well. A big home with a higher sticker price is easier to afford.

It also seems that downtown living hasn’t been embraced with quite the same gusto south of the border as in Canada. Americans have always loved their cars. Within reasonable bounds, they’re comfortable with commuting.

Person safety issues also factor in. The suburbs have seemed more secure. With urban renewal efforts and crime-fighting initiatives, this has changed in many U.S. metropolitan cores. But there may still be a legacy effect.  

Scanning across the country, the September gain in starts was led (on a percentage basis) about equally by the West (+20.1% month to month) and the South (+19.9%). The Midwest recorded a modest increase (+6.7%), while the Northeast declined (-5.1%).

On a year-to-date basis, the leader again was the West (+30.4%), followed by the South (+28.0%), the Midwest (+21.4%) and the Northeast (+18.2%).

In the latest month, the South (51.7%) accounted for more than half of all starts, with the West taking the next biggest chunk (23.3%). The Midwest (16.4%) and Northeast (8.6%) made up the final one-quarter. 

The improvement in U.S. home starts may herald the next round of construction input cost increases. Lumber prices have already started their journey upward. At $350 per thousand board feet, they’re at their highest level since 2006.

The lumber price effect from increased demand will be augmented by a couple of issues on the supply side.

Many sawmills were shuttered during the recession and it will take time to bring on additional capacity. Also, damage caused by the mountain pine-beetle has taken a bite out of inventory. One region particularly affected by the scourge has been British Columbia.

By the way, whereas China accounts for about 40% of world demand for many commodities, it’s “take” of world lumber supplies is only around 10%. That’s still a lot of two-by-fours.

The Federal Reserve recognizes how important the housing sector is to the overall economy. To provide a helping hand, the Fed has committed to purchasing $40 billion in mortgage-backed securities per month – with no termination date – from U.S. housing agencies.

According to data compiled by Freddie Mac, the 30-year fixed mortgage rate in the U.S. reached an all-time low of 3.36% earlier this month. The 15-year rate has dropped to only 2.66%. 

Adding to stronger housing demand is exceptional affordability. Prices are on a gradual incline, but they’re still at bargain levels.

Incomes to pay for housing are receiving a boost from a better labor market. The U.S. jobless rate in September fell to 7.8% from 8.1% the month before.

It may be a little late to take this information and cash it in on the stock market. Major U.S. homebuilders have already seen share prices rise significantly.

U.S. monthly housing starts
U.S. monthly housing starts
Jan-Sep average 2011 = 0.590 million;
Jan-Sep average 2012 = 0.745 million units (+26.3%).
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-Sep average 2011 = 65,900 units;
Jan-Sep average 2012 = 77,900 units (+18.2%).
Jan-Sep average 2011 = 95,200 units;
Jan-Sep average 2012 = 115,600 units (+21.4%).
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-Sep average 2011 = 301,900 units;
Jan-Sep average 2012 = 386,300 units (+28.0%).
  Jan-Sep average 2011 = 127,000 units;
Jan-Sep average 2012 = 165,700 units (+30.4%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.