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2012 shaping up as a strong year for multifamily construction starts

This year could bring a turnaround in both single-family and multifamily housing construction starts, analysts at Capital Economics said.

Capital Economics made its assertion after the National Association of Home Builders reported homebuilder confidence in the single-family segment rose for the fifth consecutive month in February, marking a four-year high.

Analysts at Barclays Capital (BCS) see the news as positive for homebuilder performance and said it presents an "compelling opportunity at current valuations," in a note emailed to clients. "We believe this is an early read on a strong Spring selling season," remarked analyst Stephen Kim in regards to the results of the latest homebuilder survey.

In fact, the multifamily segment is braced for a positive year, Capital Economics said, with starts in the segment last year rising 56% to 177,000 units, three times higher than the sector's previous low.

Furthermore, demand in the segment is up with the rental vacancy rate for multifamily homes hitting 10.1% in the fourth quarter of 2011, a rate that is below the long-run trend level for the industry.

Capital Economics believes 850,000 households a year could join the rental sector over the course of the next few years, propping up demand for multifamily units.

"We think that growing investment demand will prompt homebuilders to increase significantly construction of multifamily units in 2012. But in a turnaround from last year’s performance, we also expect single-family starts to increase this year," Capital Economics said.

Capital Economics anticipates multifamily starts will increase by as much as 50%, or 270,000 starts, in 2012.

Single-family starts declined 9% in 2011, but pressures weighing down the segment are expected to ease this year.

"As we have been saying for the last three months, we believe 2012 will mark a definitive turn in the housing cycle," Barclays' Kim said. "Our conviction is strengthened as we hear data from the field is coming in stronger and third party metrics have also uniformly strengthened in recent months."
 
"We reiterate our positive stance to the sector over the longer term," he added. "While the builders have likely rallied consistently with this bullish data, we point out that significant upside remains if housing trends continue their current trajectory."

Capital Economics says the inventory of single-family homes on the market is now down to 6.7 months of supply, which could ease pressures holding down new construction. But Capital Economics said if mortgage servicers speed up the foreclosure process following the recent national settlement with attorneys general, then the supply of homes could rise again.

The firm said single-family starts could rise 10% in 2012 to 480,000 starts, compared to 429,000 starts in 2011. Single-family starts will not outperform this year, Capital Economics said. Reaching that level will take at least a few more years of recovery, the research firm noted.

kpanchuk@housingwire.com

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