skip navigation

Stay up to date on timely topics and market events. Subscribe to our Blog now.

October 19, 2021

Housing Starts Data Right In Between

By Michael J. Bazdarich, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

Single-family housing starts were unchanged in September, off an August level that saw very slight upward revisions. Meanwhile, a decline in multi-family starts resulted in a 1.6% decline in headline starts.

The single-family starts numbers came in right between market expectations and our own. Suffice it to say that the actual data confirmed neither Wall Street expectations of a rebound in homebuilding nor our expectations of a pronounced further decline in homebuilding in order to prevent excessive build-up of new-home inventories. Homebuilding does still look to be on a downtrend, but single-family home construction continues to run far above the rate of new-home sales, thus resulting in further accumulation of unsold new homes.

Exhibit 1: Sales and Starts of New, Single-Family Homes
Sales and Starts of New, Single-Family Homes
Source: Census Bureau. As of 30 Sep 21. Select the image to expand the view.

Through August, new-home inventories were equivalent to six months’ worth of sales. Unless September new-home sales show increases of 10% or more, that inventory-to-sales ratio will rise further.

As we have explained before, the scales in this chart are adjusted to deal with owner-builds, which are counted within starts, but don’t register in new-home sales. Utilizing such an adjustment, new-home inventories can be expected to rise any time the blue line lies above the green line in the chart. This has been the case for the last year, and new-home inventories have risen throughout that period.

The gap between the lines has grown especially large over the last six months, as new-home sales have fallen even faster than starts. Again, we expected starts to begin to catch up (catch down?) with sales in the closing months of 2021, but September data fail to show such a development (as yet).

Once again, none of this is meant to imply that housing or homebuilding is weak. New-home sales remain at healthy levels. However, they have cooled noticeably from the heady pace of late-2020, and homebuilders have yet to respond fully or effectively to that pullback. The longer they wait, the greater the risk of a housing glut, as outlandish as that statement might seem given recent home price increases.

© Western Asset Management Company, LLC 2022. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.