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New Construction Falls in October on Volatile Multifamily Sector

by Peter Thomas Ricci

As has been the case for some time now, the residential construction market rose and fell on the strength of multifamily housing.

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Residential construction saw disappointing numbers in October, and as has been the case during the whole housing recovery, the market’s fortunes rested on the broad shoulders of multifamily housing.

Simply, multifamily housing has been driving the recovery in residential construction, but with housing starts for multifamily units dropping 15 percent from September to October, the entire residential market fell 2.8 percent, according to the Census Bureau; still, overall housing starts remained 7.8 percent above Oct. 2013’s levels, and on an encouraging note, single-family housing starts were up 4.2 percent month-to-month.

Also, as Bill McBride noted on Calculated Risk, year-to-date in 2014, single-family starts are up 5 percent, and multifamily starts are up 20 percent.

It’s a Multifamily (Construction) World

Other details in the Census Bureau’s report included:

  • Though starts were down, building permits were uniformly up, rising 1.2 percent yearly and 4.8 percent monthly to their highest level since 2008.
  • Again, multifamily led in those increases – single-family permits were up 1.4 percent from September, but multifamily permits were up 10 percent; in 2013, strong permit activity in October was followed by strong starts in November, so we’ll be on the lookout for such a repeat performance this year.
  • Single-family permits are actually at their second-highest level of the cycle, though as this chart shows, the overall trend is still flat.
  • Year to date, the numbers for completions (aka, new residences hitting the market) are even more striking – total completions are up 16 percent, though single family’s 8-percent increase pales in comparison to multifamily’s 42 percent; that’s very good news for consumers, as more units will slow price increases.

These are perhaps the most startling facts of all, when it comes to multifamily’s prominence in today’s construction market:

  • So far in 2014, 34 percent of all housing starts have been for multifamily projects; that’s on track for the highest such share since 1973.
  • In a stunning sign of the times, though, 93 percent of those units are intended for rent; that share is the highest ever on record.
  • Finally, as this chart plainly shows, rental apartment construction has skyrocketed since 2009, and it at its highest level since 1987.

The moral of the story? It’s a multifamily world, and will likely remain a multifamily world for the foreseeable future.

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