Clock Winds Down on Homebuilding Parties in U.S. and Canada

The vertical bars in Graph 1 tell the story of housing starts in the U.S. The monthly numbers of actual groundbreakings in units are seasonally adjusted at an annual rate (SAAR). ‘Annualized’ means they are projected from a single month to 12 months.

Legs Growing Weary in U.S. and Canadian Housing Start Sprints Text Graphic

Graph 1 for the U.S. homebuilding market shows that beginning in April of last year, starts kept climbing in almost every subsequent period out to the end of 2020.

In 2021, however, the height of the vertical bars has stayed about the same. Only March’s 1.725 million units (SAAR) makes much of an impression. The levels in the other nine months of this year have ranged between 1.45 million and 1.65 million units. U.S. housing starts in 2021 have remained elevated but the growth momentum has dissipated.

Graph 2 makes clear that it’s the single-family market in the U.S. that has gone into a skid. From 2015 through the end of 2020 (and disregarding the coronavirus-related slump in the Spring of 2020), starts of ‘singles’ were on a strong upward trajectory. In 2021, they’ve mainly been on a downward slide, although in jagged fashion.

One handy way to look at starts is to compare January-to-October monthly averages (based on SAAR figures) for 2021 versus January-to-October 2020 results. On such a basis, the ‘total’ this year has been +16.3%, with singles at +16.8% and multiples, +15.0%. By regions, it’s been the Northeast at +29.0%, followed by the West, +18.8%; South, +14.6%; and Midwest, +10.8%.

2020 Compared with Long-term

But a ‘bigger picture’ is revealed when 2021 results are compared with annual averages for the whole 21 preceding years of this century (i.e., 2000 to 2020 inclusive).

The monthly average of annualized total housing starts in 2021 so far is +24% compared with the annual average for 2000 to 2020. Single-family starts are +16% compared with their long-term average. Multi-family starts are much better at +48%.

The apartment and condominium portion of the marketplace has been expanding faster than the detached, semi-detached and townhouse portion, but it still holds only a relatively small share of total unit starts, at 30%. (Townhouses are considered ‘singles’ as long as blocks of units don’t have shared HVAC systems.)

Regionally, starts in the Northeast this year may be up the most compared with last year, +29.0%, but when held up against their long-term annual average, they are just +13%.

But that’s better than starts in the Midwest, which are a little worse than flat (-2%) when compared with their 2000-to-2020 annual average.

Population shifts in the country over recent decades have favored the South and the West Regions and that’s where housing starts have been showing the most strength.

Compared with its long-term (2000 to 2020) annual average, the West is currently +27% in housing starts.

Best of all, though, is the South, ahead by one-third (+34%).

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

Jan-Oct Avg. 2020 = 1.355 million units;
Jan-Oct Avg. 2021 = 1.575 million units (+16.3% ytd).
Mar 2021's 1.725 million units was the best since
before the 2008-09 recession.

The last data points are for October 2021.

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

Graph 2: U.S. Single-Family & Multi-Family Monthly Housing Starts
Seasonally Adjusted at Annual Rates (SAAR)

In Oct 2021, single-family starts were -3.9% m/m & -10.6% y/y; multi-family starts were +7.1% m/m & +36.6% y/y. .... The 2015-2020 trend for singles' to grow while multis stayed flat has recently been giving way to moderation in the former and some strengthening in the latter.

The last data points are for October 2021.

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

Graph 3: 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. Since 2019, starts have been fitfully climbing from the lower to the higher of those 2 figures.

The last data point is for October 2021.

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

Graph 4: U.S. Monthly Residential Building Permits
Seasonally Adjusted at Annual Rates (SAAR)

U.S. residential bldg permits in Oct 2021 were +4.0% vs Sept 2021. Compared with Oct 2020, they were +3.4%. On a ytd monthly-average basis, they've been +19.3%; up more than 'starts' at +16.3%.

The last data point is for October 2021.

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

Graph 5: U.S. Housing Starts
Jan-Oct 2021 vs Jan-Oct 2020 % Changes

Earlier in 2021, on a ytd %-change basis, 'multis' were badly trailing 'singles'; not so much anymore (+15.0% to +16.8%). Regionally, on a ytd %-change basis, the Northeast (+29.0%) is number one followed by the West (+18.8%), South (+14.6%) and, at the back of the pack, the Midwest (+10.8%). ... The South accounts for half (52.8%) of all national starts; the West's share is one-quarter (25.0%).

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

Through October 2021, cities in Texas took positions 1, 2 and 4 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 fourth. (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 7: Percent Change in Year-to-Date Housing Permits Issued (Units) in the 36 Most Populous U.S. Metro Statistical Areas (MSAs)
(Jan-Oct 2021 vs Jan-Oct 2020)

Three cities in Texas are within the top dozen for y/y percentage change: San Antonio (+41%); Dallas-Ft Worth (+35%); and Austin (+28%). Houston (+0.2%) is way back in 34th spot. Among major cities in California, San Francisco is doing best (+34%). Among major cities in Florida, Orlando is out front (+28%).

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.

Canadians Obsess on Residential Real Estate

The vertical bars in Graph 8, for Canadian monthly housing starts (SAAR), appear as descending steps since May of this year. March ascended to an all-time high, 333,000 units (SAAR), but the afterglow has been seeping away.

With only two months still to go in 2021, Canadian housing starts will almost certainly end the year up by at least one-quarter compared with 2020 and by about one-third compared with their long-term average over the past 21 years (i.e., from 2000 to 2020 inclusive).

The long-term annual average for Canadian housing starts has been about 200,000 units, whether measured over the past decade, the prior decade, or both decades combined since the turn of the century. This is just another way of saying Canadian housing starts have stayed remarkably consistent, around 200,000 units per year, for a long time.

Graph 13 shows that only when the economy was being lashed most severely during the global financial crisis in 2019, and most recently during a year and a half of pandemic, have there been significant departures from the 200,000-unit level (SAAR) for Canadian housing starts.

Graph 13 also points out an astonishing fact. On a population adjusted basis, Canadian housing starts have exceeded U.S. new home groundbreakings in every single month over the past 16 years, dating back to January 2006. (The U.S. has nine times the population of Canada.)

U.S. stock markets since the 2008-2009 recession have performed much better than Canada’s major trading post, the Toronto Stock Exchange. As of ‘closing’ in October 2021, NASDAQ was +1,025% versus July 2009; the TSX was +159%.

America, hosting many of the world’s largest corporations and especially blessed with the head offices of high-tech leaders, has reveled in the enthusiastic equity participation of its citizens.

Canadians have been inclined to go in a different direction, counting more on home price appreciation than share purchases for wealth generation. At least, talking about startling instances of home price hikes has become a major pre-occupation of Canadians.

There’s another factor that’s traditionally provided more support for homebuilding north of the border. Among industrial nations, Canada has been the pacesetter in population growth, leading to a circular argument. Being home to more people means needing more homes.

Graph 8: Canada Monthly Housing Starts
Seasonally Adjusted at Annual Rates (SAAR)

Jan-Oct Avg. 2020 = 213,600 units;
Jan-Oct Avg. 2021 = 277,800 units (+30.0% ytd).
333,000 units SAAR in Mar 2021 soared well past previous record high levels.

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

Graph 9: Percent Change in Year-To-Date Housing Starts –
Ranking Of Canada’s Provinces
(Jan-Oct 2021 vs Jan-Oct 2020)

Choosing the Ontario-Manitoba border as the dividing line, housing starts in Eastern Canada, while good at +20% ytd, have not been as bullish as in Western Canada, +31%. ... Among the provinces, the only soft spot nationally has been P.E.I., -8% ytd. ... Recently, B.C.'s lower mainland (Abbotsford), has been experiencing home, farm and highway damage due to an 'atmospheric river' of rainfall.

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

Graph 10: Percent Change in Year-To-Date Housing Starts –
Ranking Of Canada’s Major Cities
(Jan-Oct 2021 vs Jan-Oct 2020)

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 11: Housing Starts in Canada’s 6 Most Populous Cities
January to October 2021 Actuals

Toronto has recorded a 2021 ytd increase in total starts of only +1%. Nevertheless, the city still leads in level of starts in all three categories, 'singles', 'multiples' & 'total'. Toronto's ytd performance in singles has been okay (+18%), but its multiples have stumbled (-1%).

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

Graph 12: Housing Starts in Canada’s 6 Most Populous Cities
Jan-Oct 2021 vs Jan-Oct 2020

On a %-change basis, Calgary is leading in all 3 categories. ...Toronto, Montreal & Vancouver combined hold a 47.8% (half) share of total starts in Canada's 35 census metro areas. Add in Calgary, Edmonton & Ottawa-Gatineau & the slice rises to 67.0% (two-thirds)

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

Graph 13: U.S. and Canada Monthly Housing Starts
Seasonally Adjusted at Annual Rates (SAAR)

Monthly average U.S. housing starts ytd in 2021 are ahead by one-sixth (+16.3% vs Jan-Oct 2020); in Canada, the gain is bigger at nearly one-third (+30.0%). On a per capita basis, Canada has recorded a higher level of home starts than the U.S. in every month for the past 16 straight years.

The last data points are for October 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.

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.