Residential Construction is Bifurcating, Multifamily Slumps
- Housing Starts decreased by 4.8 percent in July to a 1,155,000 unit annual rate.
- Permits for new residential construction decreased by 4.1 percent to a 1,223,000 unit pace in July.
- Builder Confidence increased in early August.
The residential construction industry is bifurcating. Single-family construction has leveled out, but builder confidence remains good. The multifamily side is clearly losing steam. Total housing starts decreased by 4.8 percent in July to a 1,155,000 unit annual rate, weighed down by slumping multifamily construction. Single-family starts were little changed for the month, down by 0.5 percent to an 856,000 unit rate, still in the range established last February. Multifamily starts were down by 15.3 percent in July, to a 299,000 unit annual rate, well below the recent peak rate of 465,000 from September 2015. Permits tell the same story. Total residential construction permits were down by 4.1 percent in July. Single-family permits were unchanged for the month at an 811,000 unit annual rate. Multifamily permits were down by 11.2 percent to a 412,000 unit annual rate, well below the peak rate from mid-2015. According to the July 2017 edition of the Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS), lending standards for commercial real estate loans for multifamily projects began tightening by early 2016. We can say that lending standards have now tightened significantly over the past year and a half. This is obviously resulting in cooler construction activity. Given that the July data from the SLOOS shows ongoing tightening of lending standards, we can expect that the slump in multifamily construction will continue. Meanwhile, standards for residential mortgage loans are easing, especially for prime loans. This will keep the single-family market engaged for the remainder of this year.
The National Association of Homebuilders says that builder confidence in the single-family market remains strong. The NAHB index increased 4 points in August, to a level of 68. The NAHB also says that builders continue to face shortages of lots and of labor, and they also face rising building material costs.
Mortgage applications for the week of August 11 were little changed, increasing slightly by 0.1 percent. Refi apps increased over the last two weeks, but purchase apps show no clear direction through July and early August. We expect new and existing home sales to be flat for July.
Market Reaction: Stock indexes were up at the open. The yield on 10-year Treasury bonds is down to 2.26 percent. NYMEX crude oil is down to $47.47/barrel. Natural gas futures are down to $2.92/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Housing_Starts_08162017.
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