Forisk Consulting: US housing sector witnessed slowdown in Q3 due to dip in multi-family housing starts but single-family housing starts up 3.3%; robust home sales combined with slowing construction exacerbate housing supply shortage

This post is the fourth in a series related to the Q4 2023 Forisk Research Quarterly (FRQ) which includes forest industry analysis, timber price projections, and featured research on forest industry ability to pay for wood raw material.

The housing sector slowed in Q3, largely on a dip in multi-family housing starts. Seasonally-adjusted starts fell 6.3% since Q2 led by a 20.6% dip in multifamily starts while single-family starts increased 3.3%. The 1.36 million unit average rate is the slowest quarterly rate since the peak of the pandemic.

While housing starts slowed, the housing market remained strong in spite of higher interest rates.  New home sales increased 4.8% on seasonally-adjusted basis from Q2. Meanwhile actual home sales were up 25.9% from Q3 2022. Robust sales with slowing construction are not a winning formula to ease the housing supply shortage.

Methodology

Each quarter when updating our Forisk Research Quarterly (FRQ) forecast models, we revisit prior projections and review applied research on business and economic forecasting. Forisk’s Housing Starts Outlook combines independent forecasts from professionals in the housing industry. Currently, these include Fannie Mae, KPMG, the National Association of Realtors (NAR), the Mortgage Bankers Association (MBA), the National Association of Home Builders (NAHB), TD Ameritrade, and Wells Fargo. Forisk applies long-term assumptions from the U.S. Energy Information Administration (EIA) and Harvard’s Joint Center for Housing Studies to establish the peak and trend over the next ten years (Figure).

Projection

Forisk projects 2023 housing starts of 1.407 million, down 9.4% from 2022 actuals. This represents a 3.8% increase from our August 2023 estimate. Forisk’s Base Case declines in both 2023 and 2024 before beginning to recover. The forecast peaks at 1.56 million housing starts toward the end of the projection. Forecasters largely agree on the direction of 2023’s housing starts, while a plurality of forecasts for 2024 predict further declines. Six forecasts are within +/- 20 thousand starts of 1.35 million in 2024.  Fannie Mae forecasts a bearish 2024 with an estimate of 1.24 million starts and NAR expects a more bullish 2024, rising back to 1.55 million starts. This represents a range of 309 thousand starts.