Welcome to the first issue of the REI Newsletter. I am glad you are here.
I was recently listening to the BiggerPockets podcast and they were talking about housing starts again. It's well known that the US is behind on housing starts coming out of the great recession and the obvious slow down with COVID. We all know about what happened with the price of lumber recently and how that set us behind even further.
But that got me thinking 🤔.
I researched these answers and more and summarize them below.
The graph above comes from FRED (Federal Reserve Bank of St. Louis). They provide economic data that real estate investors (and others) use for reports. It is important to know that you can slice and dice this information 100 ways to Sunday. The graph above shows UNITS. So this is both single-family and multi-family starts. If someone is building a 50 unit apartment that would count as 50 starts. Some data you will find in news reports or blog posts will talk about single-family homes and multi-unit in different ways.
"As provided by the Census, start occurs when excavation begins for the footings or foundation of a building. All housing units in a multifamily building are defined as being started when this excavation begins. Beginning with data for September 1992, estimates of housing starts include units in structures being totally rebuilt on an existing foundation."
We have a couple of answers to our initial questions. But let's go deeper.
Doesn't the census come out every 10 years? How do they keep us up to date with housing starts monthly?
"At the midpoint of each month, the U.S. Census Bureau and the Department of Housing and Urban Development jointly announce residential construction statistics for the prior month. The report includes figures on housing starts, building permits, and housing completions. It is one of the more closely watched surveys issued monthly, as housing is seen as critical to sustaining any economic expansion."
Okay got it, so how many of these starts are we seeing in 2021?
Here are the year-to-date housing starts (remember we are talking housing units).
If you are like me, you are probably pulling out your calculator to average out these numbers. I will save you some time...
Average monthly housing starts = 1,591,000
It would appear the census bureau simply reports what happened and does not make a projection or prediction on what the economy needs (makes sense).
However, there are plenty of others who are willing to pick up the crystal ball and tell us what they think.
We are close to the range of what some experts think we need to have supply catch up to demand. But this will need to sustain to catch up from the drop in 2009-2019 and the drop caused by COVID.
TL;DR supply is still catching up to demand.
We are seeing several macro-economic events happening at the same time. Housing starts are trying to put more supply into the economy to match demand. If we continue to add more and more supply, the price of houses should help cool off this white-hot real estate market. But don't expect that any time soon. The data would suggest we are going to finish the year with supply still being behind and a good portion of the 2022 year needing more supply.
Construction crews. Most construction companies are looking for employees to help catch up to demand. As long as construction companies can find and retain talent, they will be able to continue building houses.
Landlords will have more options to offer tenants looking to rent. This will make the ultra-competitive rent situation more normalized. But there is a lag between housing starts, completed houses, and tenants being able to move in. So expect competitive rents through the first half of 2022.
Remote work is allowing people (specifically younger people) to start looking for affordable homes. They are interested in buying vs renting when the market can offer affordable houses.
There are opportunities everywhere you look. Here are a couple of situations you should consider.
These are US based data points
Unsubscribe at any time, seriously no hard feelings.
© 2021 REI Newsletter - Real Estate Investor Newsletter