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Multifamily Construction Fuels Housing Starts

A surge in multifamily construction brought April housing starts above a pace of one million for the first time this year, but single-family activity is still hobbling.

According to the Commerce Department and HUD, privately owned housing starts last month were at an estimated seasonally adjusted annual rate of 1.07 million, representing a 13.2 percent jump from March’s barely revised pace of 947,000.

Unfortunately for the supply-constrained single-family market, most of that spike came in apartment buildings, which were started at a rate of 413,000—a leap up from March.

Paul Diggle, property economist for macroeconomic research company Capital Economics, commented, “[T]he rise in multi-family homebuilding is part of a genuine long-term upward trend which reflects the rising share of the population renting, where multi-family accommodation dominates.”

Meanwhile, single-family groundbreaking was up a modest 0.8 percent over March, increasing to a rate of 649,000.

Furthermore, while permit issuance for new homebuilding was up 8.0 percent overall, single-family authorizations edged up only 0.3 percent, which—along with a 2.4 percent decline in single-family completions—suggests “housing data may struggle for a few more months,” say Mark Vitner and Anika Khan, senior economists for Wells Fargo’s Economics Group.

“Fewer completions mean completed inventories will remain low, which will continue to restrain new home sales,” the economists said in a data response. “Moreover, with single-family permits running well below starts, housing starts may give back some of their recent gain.”

Friday’s government release follows the latest data from the National Association of Home Builders (NAHB), which showed builder sentiment for the single-family market dipping further amid weak sales reports.

“The flat single-family data confirm our latest surveys, which show that single-family builders remain concerned that tight credit availability and uncertain economic conditions are keeping potential buyers on the sidelines,” said NAHB chair Kevin Kelly.

However, added David Crowe, NAHB’s chief economist, “The growth in multifamily production is a very positive development as it shows an expected increase in household formations from young people renting apartments and taking the first step into the housing market. These young households will form the demand for ownership in the future.”

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