We'll start at the beginning with this morning's housing starts data points from the U.S. Census, but rather than spin into the noise of mainstream media headlines, we'll then turn decisively to our resident Hanley Wood experts for perspective, and conclude with what today's data print means to you.
Topline, January 2014 housing starts are down. Here's what the U.S. Census document says:
Privately-owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 937,000. This is
5.4 percent (±0.7%) below the revised December rate of 991,000, but is 2.4 percent (±1.0%) above the January 2013 estimate of
Single-family authorizations in January were at a rate of 602,000; this is 1.3 percent (±0.8%) below the revised December figure of
610,000. Authorizations of units in buildings with five units or more were at a rate of 309,000 in January.
Privately-owned housing starts in January were at a seasonally adjusted annual rate of 880,000. This is 16.0 percent (±10.5%) below
the revised December estimate of 1,048,000 and is 2.0 percent (±10.8%)* below the January 2013 rate of 898,000.
Single-family housing starts in January were at a rate of 573,000; this is 15.9 percent (±12.1%) below the revised December figure of
681,000. The January rate for units in buildings with five units or more was 300,000.
Privately-owned housing completions in January were at a seasonally adjusted annual rate of 814,000. This is 4.6 percent (±8.3%)*
above the revised December estimate of 778,000 and is 13.1 percent (±12.8%) above the January 2013 rate of 720,000.
Single-family housing completions in January were at a rate of 580,000; this is 3.0 percent (±7.3%)* above the revised December rate
of 563,000. The January rate for units in buildings with five units or more was 220,000.
Even before you depart these topline data points, one can easily surmise that the variables--rates of decline, comparisons of single-family vs. multifamily, margins of error, starts vs. permits--allow for silverlining interpretations, even as the headline number signals a momentum backslide.
I want to give you a picture, first, of the single-family/multi-family trajectories, done by Calculated Risk's Bill McBride, as a first-blush look at January's figures, since multifamily starts is a volatile factor in a good month:
Here's a typical take in the mainstream media, from the Wall Street Journal's Ben Leubsdorf and Sarah Portlock.
Here's our Hanley Wood chief economist Jonathan Smoke's take on the starts release:
The starts decline is largely related to weather as permits showed less of a surprise decline. But looking at the more detailed permit data we can see that the Northeast and West were down significantly while the South and Midwest were up. The declines in the Northeast appear to be partly weather but overall the declines in the West and Northeast were largely driven by a substantial decline in multifamily and indeed single family overall was almost inline with expectations so it’s really multifamily causing the headline numbers.
Our own Metrostudy field collected data from Q4 showed a decline in starts and the most recent builder confidence data reflected a decline as well. So I think some of the starts are also a result of a builders being conservative with investments in construction inventory when lot supplies remain tight. Like last year, we are likely to see builders choose margin over volume. Nonetheless, we remain confident that this is the year we will see more than 1 million starts and year over year gains in single family of over 20%.
Now, as we zero in on the operational implications, we can have a look at what Metrostudy's Brad Hunter has to say:
We have just heard a double-whammy: home builder sentiment is down sharply, and housing starts dropped like a rock. Let’s not panic. Put it in perspective.
Everybody had expected a decline in starts because of the snow and cold in the north, but weather is not the entire issue. A few weeks ago, we reported a serious drop in our own detailed December starts numbers, with declines occurring in areas that didn’t have snowstorms (Phoenix, L.A., South Florida, Las Vegas, and Texas all fell, and by more than the normal seasonal dip). This partly reflects the affordability shock that hit home buyers last summer and fall (higher mortgage rates and extremely large price increases by the builders).
The good news is that traffic is improving. Granted, traffic is dismal in the north, but it is picking up week after week in Southern California, Arizona, Texas, and South Florida. And, sales paces (contracts) are improving. Our “sales per subdivision” measure is back up to 2013 levels in Southern California.
And, remember too that the cold weather in the north tends to boost sales in the sunbelt. Florida builders are giddy about the cold snap!
So, when you look at the dour home builder sentiment reading, remember that builders just came out of a lackluster fall season, and then those in the north have been hit with snow that slows down the labor crews and keeps shoppers away in droves. Builders are also concerned about lot supplies and labor supplies. Weather will improve, and then we will see a flurry of housing starts as builders whose production was delayed by the snow scramble to get specs built in time for the spring selling season. I expect a nice pickup in starts and sales in the spring. The numbers won’t look very exciting compared with last spring, but that will only be because sales last spring were so robust.
So, word from home building and development's actual, real-time trenches is more encouraging than the government data precincts. That's no big whup.
The important thing for home builders, while the mainstream press and the pop sound-bite economists drool over whether or not the convulsion in data's trajectory has to do with the weather or not, are these operational imperatives. They were there, and as critical, before this morning's numbers came out, and they're still there:
* Good lot supply in communities that attract today's (more-well-heeled, less-finance-constrained) buyers
* Super-intelligent labor scheduling and management to achieve velocity in construction cycle time and first-time-right performance
* Pricing and credit consulting to begin to pry first-time, entry level home buyers out of their skyrocketing rentals
* Sub-market brilliance ... i.e. who's the best at what they're doing in any given submarket arena? You better be!
* Customer care ... it's where, whether you know it or not, your next sale may come from
* Trust ... build it into the core of your culture, every rafter of every home, and every touch with a partner, prospect, and provider. It's the most lose-able of all values.
Starts releases come and go every month. This one will be next year's benchmark of comparison. That's all. There's work to do.
Learn more about markets featured in this article: Phoenix, AZ.