Oil price collapse will likely end recovery in US housing starts

Economic growth

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US housing Jan15We now have full US Census Bureau data for housing starts in 2014, which shows:

  • Starts returned to the 1m level for the first time since 2007
  • They were also nearly double the low of 554k seen in 2009
  • But at 1.006m, they were less than half of the 2.068m peak in 2005

The data also confirms the dramatic swing away from single-family homes towards multi-family apartments.  These were one-third of total starts in 2014, around double the average seen between 1989 – 2007, and back to levels last seen around 40 years ago – before the BabyBoomer home boom began.

The data is also a sign of the overall decline in home ownership levels, which at 64.4% are back to 1995 levels, when records first began.  As with employment, there is also a major divide between ownership rates for the relatively wealthy White population at 72.6%, and those for the poorer Hispanic (45.6%) and Black populations (42.9).

Equally significant is the data for the major regions in the US since 2009, as the chart above shows:

  • The largest gain has been in the South, which averaged 500k starts in 2014 versus 260k in 2009
  • The West also saw a large percentage gain, with starts doubling to 235k in 2014 versus 115k in 2009
  • Gains in the North East and Mid-West were more modest at 50k and 65k respectively

US drilling Jan15

As the map from the US Energy Information Agency on the right shows, 3 of these regions have also seen strong growth in oil/shale gas-related activity.

It highlights the 7 most prolific areas, responsible for all domestic natural gas production growth, and 95% of all domestic oil production growth, between 2011-2013.

Clearly it would need more detailed study to directly link this data with growth in housing starts.  But we do know that workers have flocked to these regions in search of jobs.

Separate Census data shows that Houston had the 2nd fastest growth in population in 2013 (after New York), and Texas had 3 of the top 10 cities in the list of fastest growing cities.

And according to the Census, Texas added more housing units than any other state as a result.

But now, the boom is turning to bust, and companies are laying off workers – particularly in labour-intensive areas such as drilling and support services.  Major job losses are already underway at Schlumberger and other key employers.

We won’t know till March or April just how bad the hit will be to housing. But it seems more than likely it will end the recent recovery in housing starts, taking 2015 levels back below the 1m level again.

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