Single-Family Starts Weak, Especially in the West

The pace of single-family starts declined for the third consecutive month as housing affordability concerns continue to weigh on the home construction market.  Total starts posted a 3.2% increase due to gains for multifamily development. Total single-family and apartment construction starts are up 5.1% on a year-to-date basis, according to the joint data release from the Census Bureau and HUD.

The November rate of single-family starts decreased 4.6% to a seasonally adjusted annual rate of 824,000. The steady decline for the pace of single-family construction mirrors recent weakness for the NAHB/Wells Fargo Housing Market Index (HMI), now registering a score of 56. Builders are concerned about housing affordability conditions due to the rise in mortgage rates and increasing construction and regulatory costs. However, rate declines over recent weeks should provide some support for the market in the coming months. Nonetheless, a 10-year low for housing affordability conditions may put a stop to the two-year trend for rising homeownership, especially for Millennials.

Despite the weak second half of the year, on a year-to-date basis, single-family starts are 3.9% higher relative to the first eleven months of 2017. Single-family permits, a useful indicator of future construction activity, were flat in November and have registered a 5.2% gain thus far in 2018 compared to last year.

Multifamily starts (2+ unit production) showed strength in November, climbing to a 432,000 annual rate. Multifamily production benefitted from higher mortgage rates and declines for for-sale housing affordability. On a year-to-date basis, multifamily 5+ unit production is 7.8% higher thus far in 2018, while multifamily 5+ unit permitting is showing a 2.1% year-to-date increase relative to 2017.

With respect to housing’s economic impact, 54% of homes under construction in November were multifamily (617,000). The current count of apartments under construction is 1% higher from a year ago. In November, there were 531,000 single-family units under construction (a cycle high, despite recent weakness), a gain of more than 7% from this time in 2017.

Regional data show – on a year-to-date basis – mixed conditions. Single-family construction is down 4% for the year in the Midwest. Single-family starts are up in the larger building regions of the South (3%) and the West (12%). Single-family construction is 4% higher in the Northeast (despite new home sales declines) due to relative strength in the not-for-sale, custom market in that region.



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