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Housing Starts, Driven by Multifamily Sector, Exceed Expectations in July

by Peter Thomas Ricci

With a strong multifamily sector driving activity, housing construction put up some fantastic numbers in July.

The homebuilding sector exceeded expectations in July, with housing starts soaring to a seasonally adjusted annual rate of 1.093 million, according to the latest numbers from the U.S. Census Bureau. That represents a gain of 15.7 percent from June and 21.7 percent from July 2013.

Of course, this being housing construction, there are many nuances to those impressive numbers, so we’ve collected the main caveats and elaborations for you:

A Multifamily World – Don’t get us wrong, a 21.7 percent increase is swell, but we should point out that the swelling multifamily sector is pretty much driving the growth in construction right now. Case in point: though single-family housing starts were up 10 percent year-over-year in July, multifamily starts were up 46 percent; furthermore, single-family starts are up 3 percent year-to-date in 2014, while multifamily starts are up 24 percent.

Multifamily Historic – Not to belabor the point, but it’s worth sharing a few other tidbits on just how rockin’ the multifamily sector is right now. At a seasonally adjusted annual rate of 423,000 starts, multifamily construction is at its highest level since Feb. 2000, and when you take out the seasonal adjustments, multifamily starts are posting their largest increases since 1989. For further perspective, check out this graph from Calculated Risk.

A Single-Family Slowdown – Meanwhile, there are signs of a slowdown in the single-family sector; though the Census Bureau still reported growth in single-family starts, it appears to be tapering off somewhat in the middle of 2014.

Permit Heaven – On a very good note, permit activity remains strong, meaning of course that we can anticipate more construction down the road. Overall permits reached a rate of 1.052 million in July, up 8.1 percent from June and 7.7 percent from July 2013. Again, though, there was divergence – single-family permits were up 0.9 percent from June, while multifamily permits were up 27 percent.

New Inventory Approaching – Finally, new home inventory bounced up a bit in July, with housing completions rising 3.7 percent above June and 8.0 percent above July 2013 to a rate of 841,000. Also, this was the one area where single family outperformed multifamily; while completions were flat for multifamily month-to-month, they were up 6.2 percent for single family. We should point out one final footnote, though – it takes six months for single-family homes to go from construction to completion, but it typically takes a year for multifamily, so given all the multifamily starts hitting the market, those completion numbers could change in the coming months.

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