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The 7 Important Things to Know about Residential Construction

by Peter Thomas Ricci

The Census Bureau’s new data on residential construction is out, but as always, we’re here to report on what lies between the lines.

Housing starts in the month of May reached a seasonally adjusted annual rate of just over one million, a 6.5 percent decline from April but a 9.4 percent uptick from May 2013, according to new numbers from the U.S. Census Bureau. Building permits, meanwhile, were down 6.4 percent monthly and 1.9 percent yearly.

Those were the headline-grabbing stats in the report, but as usual, there were more implicit findings that spoke more persuasively to what is actually happening in residential construction right now. Here are nine of the biggest takeaways:

1. Record Lows – Single-family homes accounted for just 62 percent of housing starts in April and May; that’s the lowest market share for single-family new construction since the early ’80s.

2. Multifamily Rules – In case you’re wondering, the answer is YES, multifamily is still ruling the day when it comes to gains in new construction. Here’s a great graph from The Wall Street Journal that shows the current trend:

wall-street-journal-timiraos-multifamily

3. They Come in Thirds – More specifically, multifamily construction made up 37 percent of starts in May, and year to date they’ve made up 35 percent; on an annual basis, that’s the highest share for multifamily in 40 years.

4. More Inventory on the Way – One definite piece of good news in the report, though, was housing completions, which rose 6.8 percent monthly and 24.8 percent yearly to a five-year high; though we haven’t quite jumped on the analytical bandwagon that argues that low construction is solely to blame for today’s inventory woes, such completions will certainly help matters.

5. Renters’ Relief – Completions in the multifamily sector have risen most of all, jumping 47 percent year to date; that will be very helpful for consumers being squeezed by rising rents.

6. A Formative Shift? – Though we’ve just witnessed another strong month for multifamily, it’s not enough to rule out single-family-enriched suburbs; renter household formation and single-family overbuilding during the boom years is still driving multifamily’s ascent, so we can’t proclaim a permanent shift in America’s housing preferences just yet.

7. Things are Still Improving – Though construction has bounced along irregularly thus far in 2014, overall trends remain quite positive. Firstly, when looking at housing starts over a three-month moving average, they’re actually up 10 percent year-over-year, with multifamily up 18 percent; secondly, housing starts have been at a rate of more than one million in four of the last seven months, which hasn’t happened since – you guessed it – 2008.

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