Single-family construction begins to plunge as homebuilders drown in inventory. But multi-family construction at its highest for 36 years

Housing construction split in two.

By Wolf Richter for WOLF STREET.

Beginning of the construction of single-family homes have fallen all year as homebuilders attempt to unload a huge pile of inventory while sales have plummeted and foot traffic to view new properties has plummeted. In October, housing starts for single-family homes fell again.

Start of construction of multi-family projects — condo and apartment buildings — are holding up at the highest levels since the multifamily boom of the 1980s.

Combined, construction begins of all types of private dwellings fell 4.2% in October compared to September, and 8.8% year-on-year, to reach a seasonally adjusted annual rate (SAAR) of 1.42 million housing units, according to the Census Bureau today.

During the period 2000-2020, the number of households increased by 1.17 million per year on average, capped by a decline in 2020 (purple line). This highlights the so-called “housing shortage” and “underconstruction”. But this equation does not take into account housing units that are used for non-residential purposes, such as vacant properties that are held off the market by their owners to drive the price spike all the way; and such as dwellings used as short-term vacation rentals.

The plunge in single-family construction:

Single-family home starts plunged 6.1% in October from September, and 21% from a year ago, to a seasonally adjusted annual rate of 855,000 homes. Since the free money fueled spike in December 2020, single family home starts have fallen 35%.

But even the peak remains well below the peak of housing bubble 1 in 2005, infamous for rampant overbuilding and the subsequent collapse of the industry.

Inventories of homes in various stages of construction have piled up in large numbers and in September, at 462,000 properties, reached the highest level since the start of 2008, according to separate Census Bureau data released last month. . Mortgage rates returned to normal pre-QE levels, but house prices did not, and it was a toxic mix that killed demand.

The boom in multifamily construction.

Housing starts for multi-family buildings with five or more units, such as condominiums and apartment buildings, fell slightly in October from September, but jumped 17.3% from a year ago. one year, reaching a seasonally adjusted annual rate of 556,000 units.

In many densely populated cities and urban cores, multi-family is about the only type of housing being built, such as in San Francisco, Boston, Manhattan, etc., while single-family construction takes place further away from urban cores.

These early estimates of multi-family housing starts are volatile from month to month. To show long-term trends, I converted the monthly data to three-month moving averages (3MMA), which hit the highest level since 1986.

The current rate of housing starts is up more than 50% compared to the middle of the range in 2000-2008; and it’s up about 40% from the midpoint of the range from 2015 to 2019:

Over the four-decade horizon, we can see the ups and downs in the construction of single-family homes (red line in the chart below) and multi-family units (green line in the chart below). In the 1980s, there was a giant boom in construction as a whole. Starts of multi-family units tripled during the period, leading to a long slowdown thereafter, while single-family construction continued to accelerate and finally exploded in 2005.

Lead times are much longer for multi-family projects and measured in years for tall towers. Once a project is launched, it usually keeps rolling. But home builders can scale back their building plans pretty quickly. And that, too, can be seen in the chart: During housing crisis 1, single-family construction began to decline in early 2006. But multi-family construction did not decline until the Lehman bankruptcy blew a fuse in the financial system, which has cast doubt on the financing of major projects. and everything stopped:

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