As expected, single-family housing starts fell back in March from the elevated level set in February. According to estimates from the Census Bureau and HUD, the annual pace of single-family starts was 764,000 in March, down considerably from the upwardly revised, post-cycle high rate of 841,000 recorded in February.
The decline in March was 9.2% on a monthly basis. However, the monthly drop masks the long-run growth trend, which remains in place. The March pace of single-family construction was up 22.6% from March of 2015, and the three-month moving average of single-family starts in March (792,000) was effectively flat compared to February, hovering near cycle highs. This pattern is consistent with ongoing levels of positive builder confidence, as measured by the NAHB/Wells Fargo Housing Market Index.
The slowdown of multifamily development does represent a market change. Multifamily starts declined more than 8% in March to a 312,000 annual rate. The current three-month moving average (approximately 341,000) is off peak levels set last summer. Multifamily permits for March fell 20.6% from February and are now down 12.4% on a year-over-year basis. NAHB is forecasting a slight decline for multifamily construction in 2016 compared to 2015 as local markets achieve a balance between demand and growing supply. This occurs in an environment in which rent burdens are a key economic concern however, placing additional importance on programs like the Low-Income Housing Tax Credit.
To gauge long-run trends, an examination of units under construction is helpful. As of March, 428,000 single-family homes were under construction, an increase of almost 19% on a year-over-basis. A further 552,000 multifamily residences were also in the construction pipeline, a 17.2% gain over March of 2015.
The growing supply and market share of multifamily units is one reason why growth rates of multifamily development will soften in 2016, with an expectation of a slight decline for the year. For the single-family market, additional supply is needed due to flat existing home inventory levels, but the amount of additional inventory single-family builders can add to local markets is constrained by the availability and cost of lots, labor and lending (AD&C loans).