2011 One of Worst Years on Record for Home Construction Industry

  •  Housing starts fell 4.1% in December to a 657,000 annual rate - still the second highest monthly reading since April 2010. Starts were down in the Northeast, South, and West but were up sharply in the Midwest.
  • Single-family starts were up 4.4%, the third straight monthly increase, while multi-family starts dropped 20.4% to give back all of November's advance (and more).
  •  Permits (which matter more than starts) fell 0.1%, to a 679,000 annual rate, as a rise in single-family permits was not enough to offset a decline in multifamily permits.
  •  As expected, single-family starts (data start in 1959) and permits (data start in 1960) set all-time lows in 2011, totaling 429,000 and 412,000, respectively.
  • Single-family starts and permits also hit all-time lows in 2011 in each of the four regions.
  • Housing completions (total, single-family and multifamily) also set record lows in 2011.

Outlook

This report closes the books on one of the worst years on record for the housing construction industry. A number of records fell.

 Single-family starts (data start in 1959) and single-family permits (data start in 1961) set record lows for the year. Single-family starts in all four regions (data start in 1984) and single-family permits in all four regions (data start in 1985) also set record lows. Overall, builders began work on 607,000 units in 2011, the third lowest number on record after 2010 (603,000 units) and 2009 (582,000 units).The official data on housing starts dates back to 1959, but a discontinued series available from Federal Reserve Economic Data (FRED) confirms that the 2011 numbers were the third lowest since 1946. Finally, builders completed 582,000 units in 2011, also a record low (data start in 1968); builders completed work on 444,000 single-family homes (a record low) and 138,000 multifamily units (also a record low).

For this report, permits matter more than starts because they are much better measured, less affected by weather, and are forward looking. Single-family permits climbed to their highest level in 12 months. They remain depressed, but are improving nationally and in all four regions. Multifamily permits are faring even better than the single-family permits. True, they dropped 3.7% in December - but this was payback for a 22.7% and a 13.0% advance in October and November. Multifamily permits are picking up in all four regions, with the South and the West accounting for the lion’s share of the recent gains.

Housing starts were down in December, despite very favorable weather, but the drop appears to be mostly payback for November’s strong gains. Housing starts were down 41.2% in the Northeast, partly offsetting November’s 51.6% spike; they were down 17.6% in the West, again, partly offsetting November’s 25.0% gain. Starts soared 54.8% in the Midwest - a jump likely related to unusually warm weather. 

This year should be a better one for housing than 2011. Pent-up demand for housing is building as young adults stay at home, and at some point will spark a revival in housing activity. Initially, the revival will take place in the multifamily segment. In our latest forecast, multifamily starts climb from 177,000 units in 2011 to 273,000 in 2012. Single-family starts post more modest gains, increasing from 429,000 in 2011 to 454,000 in 2012. Overall, we project that housing starts will rise from 607,000 in 2011 to 726,000 this year.

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