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US Housing Starts Drop on Apartment Construction

Posted by Joseph Trevisani on Nov 18, 2015 2:36:41 PM

New home building fell to its lowest level since March as apartment construction ebbed but a rise in permits indicated that builders foresee a better market in the months ahead. 

Ground breakings on new residential structures declined 11 percent in October to a 1.060 million annual rate from September’ revised 1.191 million pace, reported the Commerce Department. Starts had been predicted to fall 3.8 percent to 1.160 million.  Permits rose a slightly better than expected 4.1 percent to 1.150 million annualized.

Permits for single family homes climbed 2.4 percent to 711,000, the highest level since December 2007, while building starts for single units declined 2.4 percent to 722,000.

Construction on new multi-unit dwellings plunged 25.1 percent in October to 338,000 from 451,000 a month earlier. It was the largest drop since August 2014.  Volatilely is common in the apartment field. Starts also fell 25 percent from June to July.

Because apartment projects tend contain a large number of individual units, the beginning or delay of small number of projects can dramatically affect the overall inception rates.  Builders may also be reluctant to begin new apartment complexes at the moment as the number of multi-unit projects under construction is at the highest level since 1986.

The home ownership rate in the U.S. has been falling for more than ten years since hitting a peak at 69.4 percent in the second quarter of 2004. In the past several years builders have switched to apartment construction to accommodate the burgeoning number of renters.

In the third quarter of this year the percentage of American who owned their own homes fell to 63.5 percent, a 48 year low. The number or owner households decreased by 400,000 in the second quarter and the number of renter households rose by 2 million.

Young buyers, normally the bulk of first time purchasers, may have been inhibited by the slow seven year recovery from financial crisis.

Although job creation has been relatively robust for the past two years, a large portion of those new position are in low paying fields or part time, and overall wage growth has been stagnant, barely outpacing inflation.  The strong rise in home prices in many areas of the country, spurred by the Federal Reserve’s zero interest rate policy has also been a factor in keeping first time buyers from the markets. 

Two of four regions in the country recorded decreases in total starts last month. Construction dropped 18.6 percent in the South and 16.2 percent in the West.  The Northeast saw a 10 percent gain and the starts jumped 15 percent in the Midwest. 

Home builder sentiment has remained upbeat. The National Associate of Home Builders Housing Market Index dropped slightly to 62 in November. October’s reading of 65 had been the highest reading for the construction market in a decade. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

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