The Answers are in Housing “Completions”

Another Recurring Phenomenon: Starts to Completion Ratios

If ever I look down and see a penny on the ground, I always pick it up and, without fail, I always do the same thing next. That is scan the surrounding area for another penny.

I have been blathering on about the spread between housing starts and completions, making the assumption that, eventually, every started new home gets completed...some time. Not so. Today it crossed my mind that, like all other assumptions, verification can be valuable.

Following are some pretty staggering data found on the U.S. Census Bureau web site regarding starts and completion dating back to 1968.

Fascinating, eh? For over 50 years, Completions average 97.2% of Starts. (Census Bureau cites “rounding” for the sub 100%). We clearly see the lack of completions over the past decade and the 2021 completions plunge.

• 2021 has been the lowest year in five decades for Completions vs. Starts at 82% YTD.
• Since 2000, Starts are up 50%, while Completions only 35%.
• 2021 November Starts vs. Completions were just 79%, the lowest November EVER!
• December is the only month in 53 years that completions have exceeded starts, EVERY year, with an average increase of 48% greater than the previous November. Let’s translate.

Strong Housing Until Completions Turn Higher: Good for Lumber

Historically, just comparing data, during periods of economic growth, the lower the Starts/Completions Ratio, the stronger the economy, as measured by GDP. Readings of under 85% have signaled a peaking in the economy, which is likely a result of Fed tightening to reduce consumption, i.e., inflation.

From that perspective, S/C Ratio, we are near the peak, but not end, of the strongest economic expansion in over 50 years (that is limited by data availability). There is no repeating time correlation between the low S/C Ratio and the beginning of a recession; however, in recessions, the S/C Ratios exceed 100%, meaning new construction demand is lower than supply.

To close the current gap to the 50-year average, we must have several months of Completions exceeding Starts, which brings me to today’s decision point. Either housing components other-than-lumber supply chain must increase or starts must decrease. Either way, the next six months are in the bag for builders.

The FDP suggests continued inventory accumulation through February. January Chaos will not provide enough extra supply to reverse the winter uptrend, but it should pause the strength of momentum. Housing is strong until we see completions trend higher.

Just curious: where would you say are we in the business cycle?

• Economic Crisis
• Economic Boom
• Economic Growth
• Recession

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Looking Forward...ML

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