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Economic Heavy Lifting by U.S. & Canadian Homebuilders

Alex Carrick
Economic Heavy Lifting by U.S. & Canadian Homebuilders

Texas is in a League of its Own

Through the first half of 2021, the monthly average of seasonally adjusted and annualized (SAAR) housing starts in the U.S. has been +23.2% compared with January-June 2020. The one quarter increase in groundbreakings warrants the ‘mini-boom’ description being applied to the U.S. homebuilding market.

Economic Heavy Lifting by U.S. & Canadian Homebuilders Text Graphic

After climbing steadily through most of the second-half months of last year, the monthly figure has leveled off since December 2020. Furthermore, ‘permits’ which were leading ‘starts’ higher through much of 2020, have more recently descended from their peak in an apparent withdrawal to ‘base camp’ (see Graph 6).

How favorably are viewed the prospects for the Texas economy? Graph 2 provides a resoundingly upbeat answer. Among America’s 36 biggest cities (by population), the three leaders for level of residential building permits in H1 2021 were Dallas-Ft Worth (40,677 units), Houston (33,956 units) and Austin (28,459 units), all in Texas. (For cities, ‘permits’ are usually accepted by analysts as being equivalent to ‘starts’.)   

The text box in Graph 2 mentions Jacksonville and Raleigh as two other cities with smaller populations than the 36 featured in the chart, but which have managed exceptional levels of residential groundbreakings (i.e., 11,925 units and +61.5% ytd for the former; 11,316 units and +42.3% ytd for the latter).

Some other urban areas that deserve spotlighting include Sarasota, Florida (8,017 units and +70.6% ytd); Provo-Orem, Utah (6,310 units; +74.8% ytd); Cape Coral-Ft Myers, Florida (6,086 units; +13.4% ytd); and Salt Lake City, Utah (5,872 units; +13.2% ytd).

On a ytd percent-change basis (Graph 3), Philadelphia (+115.5%) has been the frontrunner among major U.S. cities, followed by Detroit (+82.5%) and Denver (+74.8%). The fastest year-to-date increase among cities in Texas has been recorded by Austin (+49.4%, or ahead by half). Only two centers among the 36 have seen declines, and relatively small ones: Columbus, Ohio (-2.0%) and Miami-Fort Lauderdale (-5.5%).  

The Lumber-in-Housing Story

The jump in U.S. housing starts soon exposed a severe shortage of construction-related forestry products, causing an almost overnight doubling in the price of softwood lumber and plywood. Presently, however, ‘futures’ contracts are indicating an easing in this supply-demand imbalance. The huge draw on wood from stay-at-home workers undertaking renovation projects is winding down. Also, there has been a ramping up of supply, partly satisfied by imports.

As an interesting aside, forestry product exports from British Columbia (which are mostly shipped to the U.S.) are +66.9% year to date, while from Quebec, they’re +28.9%.

The lumber price impact will linger regardless. A draw-dawn of the inventory of lumber purchased at extreme cost will take some time. Something else for readers to know is that the latest (June 2021) ‘inputs to new residential construction’ sub-index of the Producer Price Index (PPI) data set is +28.3% year over year. Prior to the pandemic, estimates of the cost of lumber as a proportion of total material costs of new residences were north of 25%. That figure must now be way out of date on the downside.

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

Jan-Jun Avg. 2020 = 1.285 million units; Jan-Jun Avg. 2021 = 1.583 million units (+23.2% ytd).

The last data points are for June 2021.

Data source: U.S. Census Bureau (Department of Commerce).
Chart: ConstructConnect.

Graph 2: Year to Date Residential Permits Issued (Units) in the 36 Most Populous U.S. Metro Statistical Areas (MSAs)
(Jan-Jun 2021)

Through June 2021, cities in Texas took positions 1, 2 and 3 for levels of residential permits among America's 36 biggest (by population) metro statistical areas (MSAs). Dallas-Ft Worth was number one, followed by Houston second and Austin third. (San Antonio was back in 18th spot.) New York and Phoenix rounded out the Top 5; then there was a sizable step down to sixth place Atlanta.

At the city level, the number of residential building permits issued serves as a proxy for housing starts.

Data source: U.S. Census Bureau.
Chart: ConstructConnect.

Graph 3: Percent Change in Year-to-Date Housing Permits Issued (Units) in the 36 Most Populous U.S. Metro Statistical Areas (MSAs)
(Jan-Jun 2021 vs Jan-Jun 2020)

The frontrunner for housing 'starts' percentage increase, Jan-Jun 2021 vs Jan-Jun 2020, among the 36 most populous cities in the U.S. was Philadelphia, +115.5% (i.e., more than doubling). Rounding out the Top 5, with increases ranging from about +50% to +80%, were Detroit, Denver, San Jose and Cincinnati. ... Performing worst among the 36 MSAs ytd have been Columbus, Ohio, -2.0%, and Miami-Ft Lauderdale, -5.5%.

At the city level, the number of residential building permits issued serves as a proxy for housing starts.

Data source: U.S. Census Bureau.
Chart: ConstructConnect.

Graph 4: U.S. Single-Family & Multi-Family Monthly Housing Starts
Seasonally Adjusted at Annual Rates (SAAR)

In the individual month of June 2021, single-family starts were +6.3% m/m and +28.5% y/y; multi-family starts were +6.2% m/m and +30.5% y/y/. From the apparent slopes of the curves in the graph, 'singles' have been the prime driver of the pickup in total starts.

The last data points are for June 2021.

Data source: U.S. Census Bureau (Department of Commerce).
Chart: ConstructConnect.

Graph 5: U.S. Total Monthly Housing Starts
Seasonally Adjusted at Annual Rates (SAAR)

To accommodate population growth & family formations, the equilibrium level for U.S. housing starts is thought to be 1.6 million units. The monthly average over the past 20 years, however, has been 1.25 million. During the past several years, starts have been mostly fluctuating between those 2 levels.

The last data point is for June 2021.

Data source: U.S. Census Bureau (Department of Commerce).
Chart: ConstructConnect.

Graph 6: U.S. Monthly Residential Building Permits
Seasonally Adjusted at Annual Rates (SAAR)

U.S. residential building permits in June 2021 were -5.1% vs May 2021. Compared with June 2020, they were +23.3%. 'Permits' generally set the pace for 'starts' (i.e., they lead by a couple of months).

The last data point is for June 2021.

Data source: U.S. Census Bureau (Department of Commerce).
Chart: ConstructConnect.

Graph 7: U.S. Housing Starts
Jan-Jun 2021 vs Jan-Jun 2020 % Changes

Single-family starts have been outperforming multi-unit starts this year to date, +29.8% to +9.5%. Regionally, on a percentage-change basis (ytd), the Northeast (+35.6%) has been in the lead, followed by the West (+25.0%) and the Midwest (+22.5%). The South may be in 4th spot, but it has still made a substantial gain (+20.6%) and it continues to account for more than half (52.0%) of all national starts. The West's slice is 1/4 (25.4%).

Based on averages of monthly seasonally adjusted and annualized (SAAR) unit starts.
* ‘Singles’ includes townhouse complexes, except when multiple units have common heating & air conditioning.

Data source: U.S. Census Bureau.
Chart: ConstructConnect.

Graph 8: U.S. Regional Housing Starts (SAAR) – June 2021

Northeast: June 2021 m/m = -9.0%; Midwest: m/m = -7.5%; South: m/m = +9.7%; West: m/m = +12.6%

Data source: U.S. Census Bureau (Department of Commerce).
Chart: ConstructConnect.

‘Full-on Boom’ for Canadian Housing Starts

Through the first half of 2021, the monthly average of seasonally adjusted and annualized (SAAR) housing starts in Canada has been +47.7% compared with January-June 2020. The increase by half justifies the ‘full-on boom’ designation being applied to Canada’s homebuilding market.

Moreover, it’s being achieved with almost no contribution from Toronto. New home groundbreakings in the nation’s most populous metropolis are only +2%. Multi-unit starts in what had been the condo-building capital of North America for a decade or more are -3% year to date.

Demonstrating just how dominant Toronto is to the total Canadian homebuilding scene, the city still retains its leadership position among all urban areas in level of starts year to date, 18,213 units. But Montreal (17,321 units) and Vancouver (15,294) are nipping at its heels.

From Graph 12, the surges in year-to-date housing starts of +50% or more in Oshawa, London, Hamilton, Guelph, Kitchener, Windsor and Barrie confirm the pandemic-launched shift in accommodation demand away from Toronto’s high-density core. 

The year-over-year increase in price of a new single-family home nation-wide is presently +11.9% according to Statistics Canada’s New Housing Price Index (NHPI) report. The ‘house alone’ price climb is +13.7%; ‘land alone’, +7.3%.

The Canadian cities with the biggest year-over-year new house price increases are Kitchener-Cambridge-Waterloo, +27.7%; Ottawa-Gatineau (on the Ontario side of the river), +26.2%; Windsor, +22.8%; Montreal, +19.9%; and Winnipeg, +18.1%.   

Graph 9: Canada Monthly Housing Starts
Seasonally Adjusted at Annual Rates (SAAR)

Jan-Jun Avg. 2020 = 198,800 units; Jan-Jun Avg. 2021 = 293,600 units (+47.7% ytd).

Data source: Canada Mortgage and Housing Corporation (CMHC).
Chart: ConstructConnect.

Graph 10: U.S. and Canada Monthly Housing Starts
Seasonally Adjusted at Annual Rates (SAAR)

The U.S. was catching up to its northern neighbor, but then Canadian starts launched into orbit at the beginning of this year, 2021. On a relative population basis, Canada has recorded a higher level of home groundbreakings than the U.S. in every month for the past 16 straight years.

The last data points are for June 2021.
ARROWS: U.S. numbers to be read from left axis; Canadian from right axis.

Data sources: U.S. Census Bureau & Canada Mortgage and Housing Corp (CMHC).
Chart: ConstructConnect.

Graph 11: Percent Change in Year-To-Date Housing Starts –
Ranking Of Canada’s Provinces
(Jan-Jun 2021 vs Jan-Jun 2020)

Until recently & since the turn of the century in 2000, Canadian housing starts consistently averaged 200,000 units per month seasonally adjusted & annualized (SAAR). That's why it's such extraordinary news that six months into 2021, they've averaged 294,000 units SAAR (or half again as much).

Data source: Canada Mortgage & Housing Corporation (CMHC) based on actuals rather than seasonally adjusted data.
Chart: ConstructConnect.

Graph 12: Percent Change in Year-To-Date Housing Starts –
Ranking Of Canada’s Major Cities
(Jan-Jun 2021 vs Jan-Jun 2020)

Among the nation's six largest cities, by population, Calgary is recording the greatest year-to-date increase in housing starts, +74%. Next in line are Vancouver, +57%; Montreal, +54%; Ottawa-Gatineau, +27%; and Edmonton, +17%. Trailing the pack, with barely any increase, is Toronto, +2%.

Canada’s Census Metropolitan Areas (CMAs) have core populations of 50,000 plus.
Canada’s 6 CMAs with populations in excess of 1 million are in capital letters.

Data source: Canada Mortgage & Housing Corporation (CMHC) based on actuals rather than seasonally adjusted data.
Chart: ConstructConnect.

Graph 13: Housing Starts in Canada’s 6 Most Populous Cities
January to June 2021 Actuals

For total unit starts through the first half of 2021, there's a pretty close bunching of Canada's three most populous cities ̶ Toronto, 18,213 units; Montreal, 17,321 units; and Vancouver, 15,294 units. Fourth-place Calgary is well back of the 'Big 3'.

Data source: Canada Mortgage & Housing Corporation (CMHC).
Chart: ConstructConnect.

Graph 14: Housing Starts in Canada’s 6 Most Populous Cities
Jan-Jun 2021 vs Jan-Jun 2020

After so many years of Toronto exhibiting exceptional strengh in condo construction, it's a bit of a shock to see the city record a first-half 2021 decline of -3% in multi-unit starts. Through H1, Calgary has been the percentage-change leader in both multiples, +87%, and 'total', +74%.

Data source: Canada Mortgage & Housing Corporation (CMHC).
Chart: ConstructConnect.

Please click on the following link to download the PDF version of this article:
Economy at a Glance Vol. 17, Issues 112, 113 and 114 – Economic Heavy Lifting by U.S. & Canadian Homebuilders – PDF

Alex Carrick is Chief Economist for ConstructConnect. He has delivered presentations throughout North America on the U.S., Canadian and world construction outlooks. Mr. Carrick has been with the company since 1985. Links to his numerous articles are featured on Twitter @ConstructConnx, which has 50,000 followers.

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