01/21/2015
Growth Moving Away From Multifamily Market
Housing starts ended 2014 at a 1.089 million-unit pace, while November’s
number was revised upward. Starts were 5.3 percent higher in December
than a year ago. Although multifamily starts in 2014 accounted for the
highest share of starts since 1985, growth in the multifamily sector is
beginning to wane. Migration toward more urban areas and movement
toward rental properties had bolstered this trend amid weak and, at times,
uncertain home prices. Now that trend appears to be reversing. Singlefamily
starts rebounded in December, pushing starts 7.9 percent higher
than a year ago. Multifamily starts, on the other hand, were only
0.6 percent higher than a year ago after falling for the second straight
month. The pace of multifamily starts is near its prerecession peak and
growth will look more modest moving forward relative to the strong
rebound over the past few years.
This relatively new trend was also reflected in the permits data. Multifamily
permit growth is tapering off after a strong rebound, while single-family
permits are rising again, albeit relatively slowly. Single-family permits were
8.1 percent higher than a year ago and multifamily permits were
9.9 percent lower. The data is notably volatile, but the trend is consistent
even when smoothing out the data. Overall, permits are relatively weak and
do not point to a surge in residential construction anytime soon. Total
housing permits have declined for two consecutive months and are only
1.0 percent higher than a year ago. In addition, the pace of permits is
running below starts (middle chart), indicating that December’s strength
will likely result in some payback in future months.
Housing starts in the Northeast saw a huge jump of 51.8 percent over the
year. This is unlikely to be the start of a broader trend given that permits in
the region fell in December and are lower than a year earlier. The West also
posted a monthly and year-over-year decline in permits, while starts made
gains over the same periods. On the other hand, permits in the Midwest
and South regions have posted strong gains, indicating that homebuilders
are, thus far, relatively unbothered by the impending slowdown in oildependent
states.
New home sales have struggled to see a substantial rebound and have been
virtually flat for at least the past two years, giving homebuilders little
confidence in unloading new inventory. In fact, homebuilder confidence
declined slightly in January, with buyer traffic falling and future singlefamily
sales looking weaker in the new year. With a rapidly improving labor
market and mortgage rates sliding lower, housing demand should improve
and, along with it, residential construction; however, gains are likely to
remain modest.
Source: U.S. Department of Commerce
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