Multifamily Housing Starts are Faring Better than Single-Family Starts

by 20 Apr 2012

( -- Housing starts and housing permits are generally used as economic indicators of the real estate and consumer sectors. They are closely watched by analysts due to their ability to influence other important factors of the economy, like consumer confidence and even employment figures.

The most recent reports on housing starts were mixed, particularly because the housing recovery taking place now is very different from previous recovery periods. The construction numbers for the month of March in the United States indicated that multifamily housing starts were filed at a rate 20 percent lower than during the previous month. Housing starts for single-family homes dropped slightly, but it has remained flat for the most part.

In terms of a housing recovery, the fact that there was little change in housing starts for single-family homes is more worrisome than the 20 percent month-to-month drop in multifamily housing starts. When the number of housing starts is tallied, each unit in a multifamily project is included in the count. This means that the completion or cancellation of major residential projects like apartment buildings can sharply reduce the numbers from one month to another.

When the number of single-family housing starts is flat, it points to very low levels of demand. Even at a time when mortgage interest rates are at record lows and median home prices have dropped significantly year after year, real estate investors are mostly staying away from the single-family home markets.

The Credit Market is to Blame

Median prices of single-family homes have bottomed out in the minds of many real estate analysts, even though there are still many foreclosures to process. Conventional wisdom says the rock-bottom home prices seen in real estate markets with high numbers of distressed properties will not go any lower.

The lack of demand that is preventing prices in many markets from gaining momentum is due to tight credit markets. Many mortgage lenders are still shell-shocked from the bursting of the American housing bubble and the subprime mortgage meltdown. The incredibly tight credit and underwriting requirements currently imposed on home shoppers is to blame for the lack of demand in the single-family home markets.

Multifamily housing construction, on the other hand, is booming in metropolitan areas where large numbers of mortgage applicants may have been turned down. This is why greater numbers of housing starts are for multifamily construction projects; but, it is important to remember that townhouses and apartment buildings only make up about 30 percent of the American real estate market, and it is a volatile portion.

The only true recovery can be considered when stable numbers of housing starts and permits are issued for single-family residences -at least in greater numbers than for multifamily projects.


Should CFPB have more supervision over credit agencies?