The Big Idea
November Housing Starts
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Housing starts fell by 1.8% in November from an already depressed October level to a 1.289 million unit annualized pace. The October and November narratives, however, were very different. In October, the story was the temporary impediment created by Hurricanes Helene and Milton. Starts in the South dropped from 727K in September to 660K in October, while single-family starts in the region sank from 594K to 525K. In fact, starts in the rest of the country were actually up somewhat in October.
Given all of this, the expectation was for a rebound in November, which clearly did not happen. Or did it? In fact, starts in the South recovered nicely, rising back to 727K (exactly the same as the September pace), with single-family starts in the South surging by nearly 100K to 621K, the best reading since February. Nationally, single-family starts jumped by 6.4%, rising back above a 1 million unit annualized pace for the third time in four months after not reaching that level in May, June, or July. In contrast, the volatile multi-unit segment collapsed last month. Multi-unit starts, which tend to gyrate from month to month, plunged by 24% to 278K, the lowest reading since March. Should we be worried about the multi-unit sector? I would argue no, because multi-unit permits jumped in November by 85K to 533K, almost the highest level of the year, which suggests that starts will bounce soon. November is a classic case of why housing starts are considered one of the noisiest monthly indicators and of why it usually pays to focus on the more stable single-family segment rather than the erratic multi-unit figures.
Panning out, the big picture story for the housing sector remains that builders took an exceedingly big swing in front of the 2024 spring selling season, ramping up starts in the fall and winter of 2023-24 in an effort to stock up on inventory in hopes of ebullient demand. In the end, mortgage rates stayed high in early 2024 and the spring selling season was a dud, leaving builders sitting on excess inventories of new homes for sale. Since late spring, builders have been slowing their construction pace in an effort to work down those stocks. They have made progress, but new home inventories remained elevated through October (the November reading comes next week with the new home sales release on Christmas Eve). Today’s report includes a count of the construction pipeline. The number of single-family new homes under construction fell yet again last month to a seasonally adjusted 637K, the lowest reading since 2021 and down by nearly 10% from the early-2024 high. The housing component of real GDP posted annualized declines of 2.8% in Q2 and 5.1% in Q3, as builders work to get back to balance. I look for another negative quarter in Q4 and a sluggish performance in early 2025 as well before new home inventories finally normalize.
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