Housing starts rose 1.5% in October, following a 5.5% drop in September. Building permits fell 0.6%, following a 1.7% rise the prior month. Permits are running ahead of starts but all the overshoot is in multi-family units.
Starts Improve Modestly in October
Housing starts rose modestly in October, with overall starts rising 1.5%. All of the gain, however, came from multifamily units, which jumped 10.3%. Most of that gain was in projects with five or more units, which rose 6.2% and are primarily apartment projects. Starts of single-family homes fell 1.8% in October, marking their second consecutive drop.
Single-family starts appear to have topped out in November of last year at a 948,000 unit pace, as starts rebounded after devastating hurricanes hit Texas and Florida. While hurricanes once again likely disrupted activity in parts of the South this past month, the impact was considerably less than last year, when nearly one-quarter of the nation’s new home construction was impacted for at least some period of time. Single-family starts also fell in the West (-2%) and Midwest (-1.6%) but edged out a 14.8% gain in the Northeast, which accounts for the nation’s smallest share of new single-family home construction.
Permits for single-family homes fell 0.6% in October and are running below starts, indicating that single-family starts are likely to continue to lose momentum in coming months. The year-to-date data provide a better assessment of the housing market, particularly as we enter the late fall and winter months, when building activity pulls back sharply across much of the country. Through October of this year, single-family starts are running 5.5% ahead of their year-ago pace. Most of that gain is in the West and South, where single-family starts are running 15.2% and 3.9% ahead of their yearago pace. Unfortunately, starts in both regions are losing momentum, largely due to affordability concerns. Permits for new single-family homes through the first ten months of the year are running 5.7% ahead of their year-ago pace but are running 3.4% below starts, again suggesting the single-family market will continue to lose momentum.
The weakness in the single-family market is being offset somewhat by continued strength in multi-family units. This past year was expected to see a shift in leadership in the housing market, as more renters opted to purchase a home. That shift has largely failed to materialize. While the homeownership rate has edged higher, the apartment market has caught its second wind. Many renters have opted to renew their existing leases because they feel they are priced out of the housing market. Apartment vacancy rates fell during the third quarter, despite an onslaught of new units this year, and rents have firmed.
The multi-family market is the polar opposite of the single-family home market. Permits for projects with five or more units through October are running roughly even with their year-ago pace but are running 11.7% above starts through the first ten months of 2018. With demand remaining strong, we could see a bit more strength in apartment starts in coming months, even as single-family starts continue to drop.
