Single-Family Housing Starts Weak, Especially in the West

The pace of single-family housing starts declined for the third consecutive month as housing affordability concerns continue to weigh on the home construction market. Total starts posted a 3.2 percent increase due to gains for multifamily development. Total single-family and apartment construction starts are up 5.1 percent on a year-to-date basis, according to joint data released from the Census Bureau and Department of Housing and Urban Development.

The November rate of single-family starts decreased 4.6 percent to a seasonally adjusted annual rate of 824,000. The steady decline for the pace of single-family construction mirrors recent weakness for the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), now registering a score of 56. Builders are concerned about housing affordability conditions due to the rise in mortgage rates and increasing construction and regulatory costs. However, rate declines over recent weeks should provide some support for the market in the coming months. Nonetheless, a 10-year low for housing affordability conditions may put a stop to the two-year trend for rising homeownership, especially for millennials.

Despite the weak second half of the year, on a year-to-date basis, single-family starts are 3.9 percent higher relative to the first 11 months of 2017. Single-family permits, a useful indicator of future construction activity, were flat in November and have registered a 5.2 percent gain thus far in 2018 compared to last year.

Multifamily starts (2+ unit production) showed strength in November, climbing to a 432,000 annual rate. Multifamily production benefitted from higher mortgage rates and declines for for-sale housing affordability. On a year-to-date basis, multifamily 5+ unit production is 7.8 percent higher thus far in 2018, while multifamily 5+ unit permitting is showing a 2.1 percent year-to-date increase relative to 2017.

With respect to housing’s economic impact, 54 percent of homes under construction in November were multifamily (617,000). The current count of apartments under construction is 1 percent higher from a year ago. In November, there were 531,000 single-family units under construction (a cycle high, despite recent weakness), a gain of more than 7 percent from this time in 2017.

Regional data show – on a year-to-date basis – mixed conditions. Single-family construction is down 4 percent for the year in the Midwest. Single-family starts are up in the larger building regions of the South (3 percent) and the West (12 percent). Single-family construction is 4 percent higher in the Northeast (despite new home sales declines) due to relative strength in the not-for-sale, custom market in that region. 

It takes 400 tons of aggregates to construct the average modern home, according to the National Stone, Sand and Gravel Association.

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