Housing completions have surpassed housing starts. History suggests bad things follow. But what’s happening this time? 
I picked up the idea for this post from Jay Parsons. Thanks Jay!
Comments From Parsons
Year-to-date in 2024, U.S. multifamily completions are outpacing new starts at the widest levels since 1975. The gap will likely widen further. Completions are at multi-decade highs while starts continue to rapidly plunge due to several headwinds: high rates, flat-to-falling rents for lease-ups (depending on the market), and construction costs often coming in above replacement value.
Simply put: It’s very difficult to start new unsubsidized apartment projects right now. Folks on this app often don’t realize that developers do not self-fund their own projects. They have to raise equity and debt, and that is very challenging right now for reasons mentioned above.
So while supply will continue to exceed demand in 2024, keeping downward pressure on rents, you can see how (assuming the job market stays healthy) demand could exceed supply again by 2025, which would in turn put upward pressure on rents.
Cheap debt helped fuel the multifamily construction boom, which in turn tamed rental inflation; and expensive debt is helping tame the multifamily construction boom, which could fuel renewed rent inflation.
My chart differs from his in that Jay compared the first four months to the same four months in prior years whereas I averaged full years except for 2024 which is a year-to-date average.
Since the numbers are seasonally adjusted, the ideas are essentially the same.
Supply vs Demand
One thing I slightly disagree with Jay on is that it’s overall supply vs demand not just multi-family.
For example, someone who was a renter but then buys a house, frees up a rental unit. So all completions matter, not just multi-family.
Starts Minus Completions
Whether it’s all completions or just multi-family that matters the most, it doesn’t look very good either way.
And I still wonder where we are going to house millions of illegal aliens and at what price.
Housing Starts, Permits, Completions
For discussion, please see Housing Starts Rise 5.7 Percent Following Negative 2.6 Percent Revision
Starts and permits took a huge dive since late 2021 and early 2022 until January 2023. Since then it’s bee meaningless random month-to-month fluctuations.
Completions bottomed in September of 2021 at 1,226 and are now at 1,623. Expect this trend to continue for a while. It will help the rent situation, but there are upward pressures as well.
CPI Up 0.3 Percent With Rent Still Rising Steeply, Food a Bright Spot
Rent rose another 0.4 percent in April. Food and beverages were flat with food at home declining but food away from home rising.
For discussion, please see CPI Up 0.3 Percent With Rent Still Rising Steeply, Food a Bright Spot
Most leases renew in May through August. I expect rent to moderate soon.
Retail Sales Fall Flat
Caution. Every time I suggested consumers may throw in the towel, it didn’t happen. Counter caution, real (inflation-adjusted) spending is negative year-over year for 12 out of the last 17 months.
For discussion, please see Retail Sales Fall Flat, Are Consumers About to Throw in the Towel?
There are plenty of signs of weakness, but we have seen that on and off for several years. Does Biden or the Fed have another rabbit in the magic hat?
“And I still wonder where we are going to house millions of illegal aliens and at what price.”
Well they are here by the millions already and, looking out my window, I don’t see any lying in the gutters. So I suspect they’ve found housing somewhere. Probably living 5 to a room in Tio Miguel’s casa in Omaha.
In a closer look at reality, I have a friend in Naples, Florida who pays for Cuban immigrants to come through Mexico and request asylum from the commies. He owns a couple of ramshackle multi-family units where he puts them up for “free”. Free in the sense that they have to work off their indentured servitude at very low, under the table, pay rehabbing kitchens and bathrooms in multi-million dollar properties on the beach.
He also donates significantly to Republican leaders in the state which keeps his operation running smoothly. I suspect their are millions around the country who operate like this.
Modern day slavery is everywhere and the politicians endorse it.
The new age housing starts will be tiny home communities and RVs for those that can’t afford a SF home, don’t want to rent or live with mom and dad.
This is the same as the multitude of post WW2 small houses built for returning troops.
A huge win for consumers 7-2 by a conservative court. Biden should go a step further and enforce the antitrust act and breakup Amazon and others who are double dealing as sellers of products and owners of platforms. Warren wanted to breakup big companies and banks when she ran for president. The court has spoken. We really need to get back to an economy that isn’t run by oligopolies in literally every industry. This was Warren’s whole point behind wanting to break up big tech and big banks.
https://apnews.com/article/supreme-court-cfpb-consumer-protection-9f30de9bbfa5b25a47804b101fb998e8
Would housing be cheaper if states got prisoners to start building them for free? A deep look at the prison workforce that evidently is a hidden labor force not counted in employment statistics or wages (none)
https://apnews.com/article/prison-to-plate-inmate-labor-investigation-c6f0eb4747963283316e494eadf08c4e
So there’s about to be a wealth transfer of $40T due to generational wealth transfers over the next decade or so. How does this factor into the base economy just being stronger and more resilient over time ? Unless there is wealth destruction there isn’t going to be a disastrous economy. And the wealth gap will widen. I see it in kids of first generation immigrants having more money than they expected at the age of 24. This despite the higher cost of everything. There would have to be a severe loss of wealth for there to be a severe demand destruction.
A lot of the current wealth you speak of is paper wealth generated by an atypical shortage of housing units. When that supply imbalance resolves itself, there will probably be trillions of paper dollars (trapped within wooden studs) going to money heaven…which equates to much less equity for people to lend against. That’s pretty much the credit cycle summarized. As for the great wealth transfer, many Boomers are utilizing their shelter very inefficiently. Their heirs WILL NOT waste a single square foot. That underutilized four bedroom ranch house will be listed for sale by the heirs immediately OR it’ll be put on the rental market, where the value of those four bedrooms will show up on the market at their fair market value (competing against many others like them). I can easily seeing all of that creating a glut of homes ten years from now (probably less).
Interesting possibility. One of the things I find fascinating is the differential between housing prices and rents in many locations in the Northeast and Cali. A mortgage for a million dollar house might run $8k a month, but it is rented for $3k. I’m sure someone isn’t actually losing $5k/month, so I’m betting these properties were inherited and are rented out. Given that, I suspect that the great wealth transfer may end up looking like that: folks renting out Mom and Dad’s house, keeping rent as high as possible while keeping tens of millions of houses off the market, keeping housing prices high.
I agree with your assessment except for the “keeping prices high” part. I am strongly of the belief that the purchase/rental markets do not live in isolation of each other. If all the heirs have the same “brilliant” idea, they’ll drive rents so low that the underlying value of the homes themselves will drop. But in reality, most inheritances will got to multiple siblings and the most likely thing is that will want cash in hand immediately. So, save for the immigration wildcard, I don’t see how housing does not become far less valuable in the upcoming decade. We are suffering through a temporarily locked-up market due to a unique demographic situation and a bizarre interest rate policy that no longer exists.
The housing appreciated so much that people stopped buying houses to rent out, and started buying houses to profit from capital.
These people only rented the house to cover taxes and maintenance. They did not care much about losing day to day. A lot of them bought at much lower prices as well and may have already paid off the mortgage.
Most mortgages range between 3% and 4.5% the lowest in 80 years. At this ideal and
optimal condition mortgage debt/ disposable income is 60%. You need two income
family to buy a house. At 7% mortgage this ratio is higher. The cost of a house: mortgage, maintenance, taxes and insurance is too high.
Single family plunged to the lowest level in 2010. The peak is the lowest on a much larger population. It’s a systemic change.
The single family start/completion is about the same. The multi caused the flip. The
increase from 2010 low level to 2021 peak is the highest. The multi spread will widen.
I read BNPL “loans” (freebies) are now 700B, if that’s not holding up the consumer, then I don’t know what is. Further, I see the whole crazy BNPL as very deliberate stimulus check for the ghettos of America because most people know they’re not paying squat back…and the banks and the government know it too, but they are playing dumb because wink wink it’ll all be added onto the Taxpayer’s bill eventually.
They will eventually get these new insta-ghettos filled up with gov subsidized perma-renters.
– It’s very difficult to start new unsubsidized apartment projects right now.
> Hmm.. Shouldn’t it always be hard to do so? In fact, why exactly do we do so, and with mostly Taxpayer $?
– Folks don’t realize that developers do not self-fund their own projects.
> I bet you don’t know 10 names. If you do, who do you hang around with?
– And I still wonder where we are going to house millions of illegal aliens and at what price.
> Excellent Question! We can’t even house our own legal Citizens. I keep awaiting Ana newer, but one isn’t coming, unless you count “Deportation” That will only happen with Trump or a Like Minded Republican. And even that will not come easy, and will be very costly as well.
>> We have Printed, and then Given Away, far too much $$ at Taxpayers Expense. This never ends well, when it occurs…
Expulsions of illegal immigrants are about triple under Biden than what they were under Trump. Border crossings are about triple too. The limiting factor in all of this is the number of border guards and judges to adjudicate the laws. While Democrats voted for a massive increase in both, like-minded Republicans voted against any efforts to expel more illegals. So don’t hold your breath.
Both parties are in cahoots, because they both understand the demographic time bomb that made Japan into a stagnant, indebted mess.
Thanks for this.
Could be that single-family is just lagging by a few months, and will roll over.
But I wonder if multifamily might be under-reported: how do CRE-to-Residential conversions play into the multifamily numbers? Does repurposing an existing structure show up in “starts”? “completions”?
Got Financing?
Construction financing and the availability of credit to support it.
Personal home mortgages and the ability to qualify for them.
I can tell you from personal experience in 1991 construction financing hit the wall and not a dime was to be found regardless of the borrowers financial status.
A Bend Oregon mortgage broker told me, (over a year ago) that few were qualifying for mortgages.
I can’t believe 20,000,000 penniless illegals are going to qualify for mortgages – much less add any pricing pressure to real estate.
I’m looking into my crystal ball and I’m seeing commie blocks.
I can guarantee you this crop of smartphone wielding illegal migrants is not nearly as penniless as the campesinos of yore. But your point is still valid I would say. However, they do not need to buy houses themselves to put upward pressure on shelter costs. I firmly believe that you cannot separate the purchase and rental markets overall.
Commie bocks are desperately needed in America, but for those elderly who did not manage to prepare well enough for old age. Sending individuals a check so they can age in place in a four bedroom ranch house two miles away from a hospital and grocery store is not sustainable. We have a duty to provide shelter and food for our elders, but mathematically, the new deal is Ponzi that worked for a while, when the actuarial tables penciled out, but is already causing great problems.
As far as housing all the illegal invaders, no need, just deport them, problem solved.
Hadn’t this column been used every three months for the last ten years?
Short real estate, long builders.
Let’s assume the same % of population buys a home now as did in 1968.
In 1968, U.S. population was 200 mil, somewhere in the vicinity of 1.5 million homes were built.
In 2023, U.S. population is 333 mil, somewhere in the vicinity of 1.5 million homes were built.
Unless someone can provide data to prove everyone’s adult kids now live at home, it seems like a massive case of pent up demand is on hand.
We just need the labor to keep up with supply, maybe the angry boomers grumbling about “illegals” are ok to come out of retirement and build ’em.
Or, perhaps Blackrock / Blackstone can figure out a way to lobby Congress to make homeownership too difficult, forcing the populace to rent from them instead.
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The existing houses remain.
What is the change in population vs change in new houses?
How many old houses are torn down or unlivable?
It’s not quite as simple as you want to make it.
Yes, but houses last an average 70 years depending on weather/region.
On average 250K houses are demolished per year. (crude number)
,Population has a growth rate of +/- 1% per year,(with a growth spurt around 1990 of 1.4%), while homes built oscillates around that 1.5 mil number.
1.5 million homes built in 1968 may have been a housing glut, I can’t imagine that’s the case now.
It would certainly explain home prices right now, despite Fed rates.
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There has never been more housing units per capita in the US and that doesn’t count all of the tents, vans, RVs and unzoned ADUs. The population growth is all happening among people that have a much larger household size. When recessions hit, household size trends up because kids move home with mom and dad, grandparents move in with their kids, and people get roommates. When I was in San Diego in 08-10 it wasn’t uncommon to have three generation households with multiple unzoned accessory dwelling units on the same single family plot. I doubt it has gotten better since then.
Eventually people won’t be able to hold onto their three short term rentals and they’ll lose their own house too, but for now people can trade overpriced assets among themselves and despite the volume being way down it kind of looks like demand.
“There has never been more housing units per capita in the US…”
This is a given, where there has never been such a large population, the question is of per capita supply.
“The population growth is all happening among people that have a much larger household size”
Homes built per year, minus homes demolished, is less than 1/2 U.S. Birth rate, families are no larger now, in fact, they’re smaller, this assumes all houses are bought by married couples.
As for people “living in tents and vans”, this odd comment would actually support my argument.
It’s not a question of per capita supply, as I said it’s the highest it’s ever been. There is no real shortage outside of speculation. The point is people have been living in tents since they wandered the plains and they’re not going to afford overpriced assets and aren’t “demand” at today’s prices and neither are the people with large families. Today’s “demand” is little more than people trading one overpriced asset for another while the inventory builds and eventually someone won’t be able to pay the carrying costs anymore. I’m sure they were preaching a lack of office space right up until they realized half of the offices were empty and there were no bidders at today’s cap rates
Don’t worry about the boomers. They’ll be taking up residence in another place. I’ll let ya guess where… it’s a place you can whistle by.
There is a run on grave plots. The ultimate downsizing.
The population growth rate is much lower today.
If you want a shortcut into an interesting dig into the lack of supply, it smells to me more of a surge in demand. We’ve actually built a good amount of new units the last 15 years or so, at least in comparison to population growth. For example, 2022-2023 population growth of 1.8ish million, and 1.557 new, privately owned housing units completed. Considering average household size of 2.51, that’s close to 3x as many new units as pop growth.
Longer example: 2015-2023 we added 6,847,000 households per US Census. During this period, 11,320,000 new units were completed.
However, it’s more complex as Mish pointed out – a lot of housing units get tore down, geographic mishmatch in supply-demand, etc.
I couldn’t get to the bottom of this seemingly contradiction to everything we here and chalked it up to all the post college dudes holed up together in their little frat apartments finally deciding during the government’s Covid giveaway that they want their own places, but the household formation data doesn’t support this theory. Now I think all these residential houses converted to air bnb is the culprit. Maybe if the cities would grow a spine and enforce existing CC&R agreements then we’d see a flood of available homes again.
Thank you for the well explained reply.
I’m aware of the parameters you bring up, I already factored them, including a large surge in birthrate 32 years ago that should also contribute to demand now.
My basic point still remains though, we were building around 1.5 million homes 50 years ago, with an average population growth rate of 1%, and eliminating/demolishing a regular % of older homes (200-300K per year), we should be building a higher volume of homes just to keep with population growth.
Then, add the birth rate surge 32 years ago.
I’m interested in your numbers, if you care to share them.
Occam’s Razor is probably that the home builders are still scarred from the 2008 crash and don’t dare build enough specs no matter how high demand goes.
I looked into M/I Hones quite a bit (ticket MHO). Pristine balance sheet, appears well ran, product in high demand, yet they remained overly cautious even after the initial mortgage rate shock failed to crater housing demand. They were leaving money on the table, and a lot of it out of fear. I can only imagine the much larger home builders take at least something of a similar stance.
At any rate, overproduction of specs like 2007 doesn’t seem in the cards.
The conservative builders stayed in business. The aggressive ones went out of business.
“ Unless someone can provide data to prove everyone’s adult kids now live at home, it seems like a massive case of pent up demand is on hand.”
Families have approx 1.5 children now vs 3 children 60 years ago. There are less kids to move out therefor need less new houses built.
The aging population is a big contributor to population growth – people are generally not dying as much as 60 years ago.
The U.S. Economy is Tanking . . . Housing starts don’t mean anything . . .
Yes, take out a 2nd mortgage, use the money to short the market, I’m too stupid to know better, so I’ll be on the other side of your trade.
Never let the facts get in the way of a good story.