Housing construction activity increased 14.6% in January but the increase was entirely within the multifamily construction sector, which often experiences large swings. The larger absolute share of housing starts (75%) remains in the single-family sector, which fell a statistically insignificant 1%.
The relative steadiness in single-family construction is positive news since January weather was worse than normal and therefore the seasonal adjustment factors probably did not boost the low numbers sufficiently to reflect the out-of-norm weather. The February NAHB/Wells Fargo Housing Market Index also held steady for the fourth month. Single-family construction declined the most in absolute numbers in the south region, which was particularly hard hit by extraordinary winter weather.
The large increase in multifamily construction does come after an unusually low fourth quarter 2010. The fourth quarter averaged 99,000 starts of buildings with two or more units, which were down from the first nine month average of 119,000. While the January increase is not likely to be sustained, we do expect some continued increase in multifamily rental construction as many newly formed households chose to rent in new communities.
New building permits fell 10.4% in January but that was from an elevated December level caused by builders drawing permits in anticipation of building code changes in 2011. The three-month moving average of total building permits did increase in December and January and increased three months in a row for single-family permits. These trends support the NAHB’s forecast of continued slow but positive growth in construction in 2011.