Housing Starts Catch Breath in U.S., Go Full Steam Ahead in Canada

Permits Still Exceeding Starts

In the U.S., new home building, which seemed set to keep surging, has lost some of its momentum in the last two months. In Canada in February, there was only a minor hesitancy in the headlong rush of residential groundbreakings, due to Toronto ‘playing it cool’.

After reaching a peak level of housing starts of 1.670 million units in December of last year, U.S. figures have dropped to 1.584 and 1.421 in the latest two months respectively. Canadian housing starts are +17.1% compared with February of last year.

Let’s look at the U.S. first. After reaching a peak level of housing starts of 1.670 million units in December of last year, the figures have dropped to 1.584 and 1.421 in the latest two months respectively.

The bias of work still leans towards single-family starts, which in February were -8.5% month to month, but +0.6% year over year. Multi-family starts lost support, declining -15.8% m/m and -28.5% y/y.

Regionally, only the West managed percentage-change increases in housing starts both m/m and y/y in February, +17.6% and +15.8%. The Northeast was -39.5% m/m and -2.5% y/y; the Midwest, -34.9% m/m and -29.9% y/y; and the South, -9.7% m/m and -16.6% y/y.

To date in 2021, the South has accounted for half (50.8%) of all housing starts nationally. The West has claimed a share a little bigger than a quarter (27.1%). The other two regions have approximately split the remainder (10.5% for the Northeast and 11.6% for the Midwest).

One shouldn’t become too discouraged by February’s pullback in total U.S. housing starts. Residential permits, which are a leading indicator for starts, have continued strong. In the latest month, they were 1.682 million units, +17.0% y/y (although they were -10.8% m/m).

Over the past 12 months, the number of permits issued in units has exceeded the number of starts, also measured in units, by 100,000.

Climbing Mortgage Rates and Prices Apply a Damper

It seems one can’t talk about housing construction without also delving into the subject of prices.

The Census Bureau’s price deflator for new single-family houses under construction is currently +6.8% year over year. This is likely to move up in even livelier fashion over the next several months given the recent rapid increases in lumber prices.

The Census Bureau’s average sales price for new single-family housing is ahead by +7.8% y/y.

The S&P CoreLogic Case-Shiller 20-city composite price index for resales of existing homes is ahead +10.1% year over year.

Seemingly, slightly increasing mortgage rates and prices that are rising, not yet alarmingly (see next section on Canada), but noticeably nonetheless, are putting a mild and probably temporary damper on the new home building marketplace.

As another indication of the slowdown, the number of months’ inventory of new single-family homes for sale (as tabulated by the Census Bureau) touched a quite low 3.5 in July of last year. By February of this year, the inventory number was up again to 4.8 months.

It should be noted, though, that 4.8 remains tight. The inventory number usually lies between 5.0 and 6.0 months.

Graph 1: U.S. Monthly Housing Starts
Seasonally Adjusted at Annual Rates (SAAR)

Jan-Feb Avg. 2020 = 1.592 million units; Jan-Feb Avg. 2021 = 1.503 million units (-5.6% ytd). Dec 2020's 1.670 has been peak so far since last recession.