A Tale of Two Housing Markets: Single and Multi Family
The numbers are in, the analysts are out, and given the volatility of this particular economic indicator, the spin is at full speed:
“Good News on Housing Permits More Than Offsets the Bad News on Starts”— HIS Global Insight
“Housing Starts Decline Again” – Capital Economics
“March Multifamily Starts Down; Permits Continue Upward Trend”— KBW
“March Construction Numbers Aren’t As Bad as They Look”— Trulia.com
“Housing Starts Lacking Consumer Confidence” — Sageworks Inc.
Here’s the problem: We are living a tale of two housing markets, single and multi-family. Depending on what kind of builder or investor you are, you’re going to see the housing starts numbers differently. Let’s weed through it first:
Total starts fell 5.8 percent, driven by a nearly 20 percent drop in multi-family. Single family was essentially flat month-to-month. But remember, multi-family is a very volatile number and can swing 20-30 percent monthly due to large local projects. Yes, they are both ahead from last year, but 2011 was the worst year in the history of U.S. home building.
“The further fall in housing starts in March means that about a third of the past year’s improvement in homebuilding has now been undone. But the continued rise in building permits is an encouraging sign which suggests that housing starts will improve again later this year,” writes Paul Diggle at Capital Economics.
Building permits are always seen as a better indicator of construction, or at least more dependable and less influenced by weather. Single family permits dropped 3.5 percent month to month, but multi-family surged ahead 24 percent to the highest level in four years.
“The pickup in multifamily construction is taking place most noticeably in the South and West—again, not a big surprise—since 46 of the 50 fastest-growing metro-area populations from 2010 to 2011 were in the South or West, according to the Census Bureau,” writes IHS Global Insight’s Patrick Newport.
Clearly we’re still seeing big demand in the multi-family sector, but single family is still faltering.
“Single family is more of a restocking issue,” said Morgan Stanley’s Oliver Chang on CNBC. “In order to meet baseline demand, they [builders] have to build.”
Chang says real growth in single family demand just isn’t there, due to a still tightening credit market. On the flip side, he claims that distressed housing has stabilized and distressed home prices have bottomed; that’s because investors largely use cash.
So if there’s all this demand for single family rentals, and investors are rushing to get in, is there still enough demand for all this multi-family construction?
“Bottom line, with the secular decline in home ownership, multi-family construction will be where it’s at for a few years but still only make up about 30 percent of total starts. Single family starts still have the intense competition with foreclosures and now rent seekers,” writes Peter Boockvar of Miller Tabak.
So why, as we asked yesterday after the disappointing builder sentiment report, did single family starts, permits and sentiment rise through the fall and the winter only to slam on the breaks? Newport calls that one a “head scratcher,” and adds, “If the builders have gotten ahead of the game, single-family construction will go through a demoralizing slowdown later this year.”