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Real Estate

Multifamily volatility drags down housing starts

Single-family construction remains solid

Housing starts decreased 5.3% in September, primarily due to volatility in the multifamily sector, according to the latest report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

Nationwide Senior Economist Ben Ayers said: "starts were off in September, driven mainly by volatility in multifamily construction. Still, the market exhibits enough demand for new builds to drive further single-family construction ahead, despite higher mortgage rates."

"Importantly, the trend in starts for single-family construction remains solid. While down slightly in September, single-family starts are up 4.8% over the past year," he added.

Privately owned housing starts decreased in September to a seasonally adjusted annual rate of 1.201 million down 5.3% from August’s 1.268 million, but is still 3.7% up from the annual rate of 1.158 million in September 2017. 

Single-family housing starts stood at a rate of 871,000, up nearly 5% from last year.

However, the volatility in multifamily is a monthly issue, the starts are still up 4.5% compared to last year. Nonetheless, multifamily starts were at 324,000, compared to last month's 372,000 (revised down from 392,000), so that's a 12.9% dip.

PriceWaterhouseCoopers Principal Scott Volling said regional results indicate that weather may have had an impact on housing starts. 

“The South region, which is the largest of the four regions in terms of building activity, saw starts decline by 13.7%, likely as a result of Hurricane Florence,” Volling said. “Had the South been flat month over month starts would have exceeded expectations.  As we look ahead to October, it is likely Hurricane Michael may also impact starts for the South, though the impact should be materially less given the large markets of Jacksonville, Orlando and Miami were unscathed."

The September rate for units in buildings with five or more units decreased to a seasonally adjusted rate of 324,000, decreasing from 392,000 in August.

Building permits, decreased from August both monthly and annually. The number of homes being built slid 0.6% from 1.249 million in August to a seasonally adjusted annual rate of 1.241 million in September, down 1% from 1.254 million one year ago.

Privately owned housing completions decreased to a seasonally adjusted annual rate of 1.162 million in September, down 4.1% from August’s 1.212 million. Notably, this is 7% above 1.086 million in September 2017.

Single-family housing completions decreased 8.7% from 924,000 in August to a rate of just 844,000 completions in September.

Navy Federal Credit Union Corporate Economist Robert Frick said the housing market continues to sputter.

“The question is if the low level of starts, permits and completions we've seen the last four months is a lull or a slide that won't be corrected until the next recession, when home prices should drop, allowing more buyers to afford their first home, and a trade-up home,” Frick said.

“A slow pace of home building, home prices rising much faster than wages, and rising mortgages rates – though they are still below historical averages – are acting to depress the market," Frick continued. "If wages rise at a quick pace, and home prices increase at a slower rate – as we've seen recently – there could be a revitalized home market, but likely not for months.”

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