Fitch: This Cycle Versus Past Cycles in US Housing

NEW YORK & CHICAGO--(BUSINESS WIRE)-- Single-family starts have risen in five of the past six years and have consistently improved since 2012, according to Fitch Ratings. However, the magnitude of improvement from the very low trough has been considerably less than in past recoveries. With annual production of homes (total and single-family) in 2015 still well below the long-term averages of 1.4 million for total starts and 1.0 million for single-family starts, there is room for at least two more years of expansion.

In past housing cycles, downturns have been precipitated or extended by events such as economic recessions, disintermediation and the savings and loan meltdown. In every cycle since at least the mid-1970s, a tightening of credit standards following the liberalization of lending terms tended to deepen and extend the downturn.

The last correction was longer and sharper than past downturns, especially the prior major correction, which ultimately extended from 1987 to 1991. Fitch uses single-family starts as a proxy for single-family housing metrics. New home sales have followed a similar historical pattern, although they have not been quite as volatile as starts.

Since the mid-1960s, and excluding the previous housing cycle, the upcycle for single-family housing starts has averaged 4.3 years. During the previous cycle, which began in late 1991, 14 years of expansion were followed by roughly five to six years of contraction.

Single-family starts expanded 68.1% during the mid-1960s to early 1970s. During the next cycle (1975-1977), the expansion from trough to peak was 63.4%. In the subsequent upturn, starts improved 78.0%. The last full, extended upcycle registered a 104.2% improvement in single-family starts from trough to peak (1992-2005).

During the downturn in the early 1970s, single-family starts fell 32.2%. In the midst of the next housing correction (1978-1982), starts declined 54.3%. The correction that preceded the current cycle registered a decrease of 28.7% in single-family volume. Single-family starts fell 14.6% in 2006 from the 2005 peak (total starts down 12.9%).

Single-family starts were off 39% from the 2005 peak to year-end 2007 and were down about 74% by the conclusion of 2009. Single-family starts rose in 2010, but then declined in 2011 to 430,600, off 71.3% from the 2005 total. Single-family starts rose 24.3% to 535,300 in 2012. Single-family starts increased 15.4% in 2013, grew 4.9% in 2014 and 10.3% in 2015.

Fitch forecasts that single-family starts will rise 11.5% this year and 11.0% in 2017.

For more information, please see our special report, "What Investors Want to Know: Under One Roof - US Housing Forum 2016," which is available at www.fitchratings.com. Additional materials and research are available in Fitch's U.S. Housing Forum page.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Related Research

What Investors Want to Know: Under One Roof - U.S. Housing Forum 2016

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882747

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160623005796/en/

Fitch Ratings
Robert P. Curran
Managing Director
Corporates, Homebuilding
+1 212 908-1515
Fitch Ratings
33 Whitehall Street
New York, NY 10004
or
Robert Rulla
Director
Corporates, Homebuilding
70 West Madison Street
Chicago, IL
+1 312 606-2311
or
Kellie Geressy-Nilsen
Senior Analyst
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+1 212 908-9123
or
Media Relations:
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Email: [email protected]

Source: Fitch Ratings

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