Total housing construction fell 12% in October to a seasonally-adjusted annual level of 519,000, the lowest in 1 ½ years. However, the picture is significantly different between the single-family and the multifamily or rental construction sectors. Single-family construction fell 1% and remains at virtually the same level it’s been at for four months. Single-family permits also remained at the same level as the last four months.
The single-family market remains in a holding pattern after the end of the home buyer tax credit as buyers await solid positive economic indicators that their jobs will remain in place and that the economy is moving forward. The new home inventory remains at a 42 year low, and new home sales have improved recently, albeit at a very low pace. Hence, some continuation in construction is needed to respond to the demand that is growing in the markets that did not experience overbuilding or abnormal price increases.
The drop in construction was concentrated in the multifamily or rental construction component, which dropped 44% to a seasonally-adjusted annual rate of 83,000, which is the lowest since February 2010. The drop was due to abnormal declines in the South and West census regions. Multifamily permits, however, were virtually unchanged and add to the evidence that the October data is an aberration that is not unusual in the multifamily data. Rental projects are large and one or two projects delayed from one month to the next have an inordinate effect on the sample and consequently on the overall estimate.
Renewed demand for rental properties and tight credit standards for prospective home buyers suggest that rental demand will strengthen as the economy improves and new job entrants form new households and choose to be renters.
All-in-all, the October residential construction report shows a continued holding pattern in housing as consumers wait stronger and more consistent economic and job news.