Builders may be skeptical about the health of the housing market, but new construction numbers released Tuesday by the U.S. Census Bureau suggest the market may at last be on the mend—just in unexpected ways.
Total housing starts jumped 10.5% on a monthly basis to a seasonally adjusted pace of 598,000, solidly beating the predictions of industry experts, who had predicted a decline in August starts numbers. Total building permits also rose, inching up 1.8% to a seasonally adjusted level of 569,000 units.
On an annual basis, total starts are up 2.2% compared to August 2009 while permits are down 6.7% for the same time frame.
The reason? Increased multifamily activity. Multifamily starts skyrocketed 32.2% on a monthly basis to a seasonally adjusted level of 160,000 while permits rose 9.8% to a seasonally adjusted level of 168,000.
In comparison, single-family starts notched a smaller monthly increase, moving up 4.3% to a seasonally adjusted pace of 438,000 units. Year-over-year, such activity was down 9.1% compared to August 2009.
Permits also proved slightly weaker on the single-family side, dipping 1.2% on a monthly basis to a seasonally adjusted level of 401,000 units. That’s 16.8% below the same month last year, when builders were still trying to maximize sales from the soon-expiring housing tax credit.
“Homeownership is no longer so desirable--or even possible--for as many households as before,” noted Chris G. Christopher, senior principal economist at IHS Global Insight in Lexington, Mass. “Recent evidence suggests that the mix of residential housing demand is shifting from single-family towards more multifamily structures [and] from owner-occupied toward rentals. The housing recovery will remain very slow, but it seems that it will move faster in the multifamily segment than the single-family segment.”
Public builder analyst Carl Reichardt agreed. “While multifamily starts and permits activity can be volatile, we note that this segment--largely rental apartments--was responsible for most the significant change this month. With builder commentary and field checks continuing to indicate sluggish demand, and a relative lack of multifamily construction compared to single-family for the past 20 years, we believe a resurgence in apartment construction could continue,” said Reichardt, managing director and senior equity research analyst at Wells Fargo Securities in San Francisco. “After bottoming at 360,000 in January 2009, single-family housing starts increased sequentially for six consecutive months and then showed an upward trend through April 2010, suggesting at the time that a firm trough had been achieved and that the worst in production volume levels had passed.”
Or so Reichardt expected. “Single-family starts have been weaker since then, however, as the tax credit-related volume build-up has been worked down,” he said. “We continue to believe single-family starts will stay pinned to comparatively low levels until vacant on-the-market capacity is worked down more meaningfully.”
Alison Rice is senior editor, online, at BUILDER magazine.