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Inflation has been tamed, maybe (a subject that will be addressed further along), interest rates have been headed downwards, and based on history, it is time for a recovery in housing starts to lead to an upsurge in gross domestic product (GDP) growth. That is the typical pattern for where we currently sit in a business cycle that continually oscillates. But is that what will occur this time?
Are there any signals in the current economic data set that suggest residential construction may be on the cusp of a pickup? The answer is yes. As one example, a quite positive development has emerged in retail sales registered by building material and supplies dealers.
US Residential Construction
Beginning in January 2023, coincident with when monthly housing construction starts were hitting the skids, the year-over-year sales receipts of key construction industry suppliers were not only slowing but sinking into negative territory. They subsequently stayed in the red for 15 straight months, reaching a bottom in January 2024 of -8.7% y/y.
But a turnaround has arrived. In June of this year, they climbed back above the zero-percent life-support line, and they have been on the plus side for four months in a row, reaching +3.4% for the latest reporting period, September 2024.
The housing starts numbers, though, are still not offering encouragement.
Monthly US total housing starts through October of this year averaged 1.355 million units, which was -3.4% compared with the corresponding figure last year. Standalone October was 1.311 million units. (The long-term monthly average this century has been about 1.300 million units.)
Geographically, on a year-to-date monthly average basis, the Northeast Region has managed forward progress, +8.2%; the Midwest has been flat, +0.4%; and the West and South have experienced declines, -3.8% and -5.9%, respectively.
On average, single-family starts this year versus last year have been +8.3%, but multi-family starts have seen a severe drop of -28.0%. Multi-family starts, in units, have tumbled by almost half over the past two years.
Diving deeper geographically, only about a third of the nation’s 36 most populous cities have registered percentage increases in residential building permits issued to date through October, while two-thirds have experienced declines. (At the city level, analysts accept permits in units as synonymous with starts.)
The two leaders on the plus side have been Kansas City, +46.6%, and New York, +39.5%. Warranting special mention, however, is how well all three major centers in Ohio have been doing. New home authorizations in Columbus through October were +18.3%, while in Cincinnati, they were +15.6%, and in Cleveland, +14.7%.
Recording worst year-to-date changes in number of housing permits, expressed in units, have been San Francisco, -20.1%; Los Angeles, -21.6%; Portland, -24.9%; Riverside, -26.3%; Miami-Fort Lauderdale, -30.1%; and San Jose, -30.8%. Notice that four of those six are in California, while five of the six are located along the Pacific coastline.
As for the number of residential permits issued to date through October, the perpetual frontrunners Dallas-Ft Worth (61,723 units) and Houston (55,935 units) are doing it again. New York (48,063 units) is in third spot, with Phoenix (38,818) and Atlanta (34,555) rounding out the Top 5.
Add Austin (27,343 units) and San Antonio (12,402), and Texas is the diva performer among all states for city housing starts. Within Texas, next in line is McAllen-Edinburg (6,226 units). But Texas, compared with some other states and regions, does not have as wide a distribution of urban centers with notable levels of housing starts.
Specifically, ten centers in Florida have starts summing to 117,670 units, with Orlando (20,016 units) at the top. Similarly, there are ten centers in the Carolinas with starts that sum to an impressive 87,716 units, headed by Charlotte (22,028 units). Texas, Florida, and the Carolinas – all in the South ‒ comprise the elite among states for new urban homebuilding.
Among the US cities with the highest number of residential permits to date this year, most have had a greater weighting of single-family properties versus multi-family structures by number of units, including the overall leaders, Dallas-Fort Worth (singles at 68.9% of total) and Houston (singles at 83.2% of total).
Nonetheless, the seven cities where the proportion of total units authorized has been skewed more towards multis as opposed to singles are noteworthy: New York, 70.2%; Miami-Fort Lauderdale, 62.3%; San Diego, 61.7%; Boston-Cambridge-Newton, 61.7%; Columbus, Ohio, 54.3%; Seattle-Tacoma-Bellevue, 52.3%; and San Francisco-Oakland, 52.2%. San Jose, at 48.3%, almost made it into this exclusive grouping.
The New Administration in Washington
Uncertainty around what policies the new administration in Washington will adopt throws an easy assumption of an imminent US housing recovery into doubt. Consider the following possible scenarios, with unknowable and potentially unpleasant ramifications.
Vigorously pursuing the deportation of millions of undocumented immigrants/residents would seem to suggest a shrinkage in the demand for new non-temporary housing? Also, it will hamper the ability of contractors, already facing worker supply shortages, to fulfill building commitments.
A new, much tougher tariff regime may revive inflation just as it has dropped to the mat and been taking a ten-count. The reality of a more robust price increase backdrop may inspire the Federal Reserve to hold the line on still relatively high interest rates or even once again hike them, a truly worst-case scenario impacting the prospects for a housing starts recovery.
Canada’s New Homes Market
In Canada, the monthly average of housing starts (SAAR) to date this year (i.e., through October) has shown almost no difference from last year, -0.1% (243,900 units to 244,100 units).
Geographically, the support for Canadian housing starts has come from Alberta, +34%, the Atlantic provinces, +31% (with all four of them making advances), and Quebec, +21%. Two of the traditional powerhouses, Ontario and British Columbia, have been taking a timeout so far in 2024, -18% and -11% respectively.
Among Canadian cities, a dramatic shift has occurred in the number of groundbreakings underway. There has been a shattering of the long-held ranking. Toronto (34,437 units) is still well out front, followed by Vancouver (23,044), but both of Alberta’s major cities (Calgary at 20,014 units and Edmonton, 14,796) have pulled ahead of Montreal (13,881), relegating that city to fifth spot instead of its usual third position.
Keep an Eye Out for...
Finally, circling back to the opening paragraph, keep an eye out for what Home Depot, Lowe’s, and others of similar ilk have to say about their cost structures in the weeks ahead, with higher import tariffs looming.
There are wide swaths of products extending into the construction marketplace that are simply inaccessible or scarcely available from domestic sources. For example, primary aluminum production in the US, which finds its way into venting equipment, is a shadow of what it once was; nor can US sources supply all the nation’s lumber needs when homebuilding activity is perkier.
Higher prices may render the pickup in sales by building material and supply dealers regrettably short-lived.
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