Single-Family Starts: Best Pace Since Spring of 2007

Single-family starts experienced continued gains in October, according to data from the U.S. Department of Housing and Urban Development and the Census Bureau. Single-family construction is up 8.6% year-to-date, with notable gains in 2020 for the Midwest and other lower-density markets.

The pace of single-family starts in October was the highest production rate since the spring of 2007. Single-family building increased 6.4 percent to a 1.18 million seasonally adjusted annual rate. The October reading of starts was consistent with surging builder confidence, as single-family construction rises to meet strong buyer traffic, supported by low interest rates, a changing geography of demand, and a growing number of sales that have not started construction. However, builders continue to face challenges in terms of supply chain shortages of building materials and a lack of lots. Single-family permits have flattened out (rising only 0.6% in October) indicating some slowing of growth for single-family starts in the months ahead.

The multifamily sector, which includes apartment buildings and condos (96% built-for-rent currently) remained flat at a 351,000 annual rate for 2+ unit production. The weakness for multifamily development is consistent with our forecast, as multifamily permits for 5+ unit production are now down more than 11% on a year-to-date basis. The year 2021 will see a decline for multifamily starts, although there will be strength for low-rise multifamily development.

Combined, total single-family and multifamily housing starts were up almost 5% in October and are up 6.7% on a year-to-date basis.

As an indicator of the strength of the housing, there are now 564,000 single-family homes under construction. This is 8% higher than a year ago, despite the declines for construction starts in the spring. At its peak level of decline in April, single-family starts were down 34% compared to the pre-recession peak in February.

There are currently 670,000 apartments under construction, off a post-Great Recession high mark set in August (683,000). This count will continue to decline in the months ahead on weakening rental demand, particularly in high density areas.

Delays caused by material cost increases and shortages appear to be easing. For October, the count of single-family homes that have an authorized permit but have not started construction dipped to 104,000, the first decline of this count since December of 2019.

On a regional and year-to-date basis (January through October of 2020 compared to that same time frame a year ago), single-family starts are up more than 10% in the Midwest – the leading region for gains. Single-family starts are up 9.1% in the West, 8.6% in the South, and 2.7% in the Northeast. Gains will continue to occur in areas with relatively higher housing affordability as telecommuting permits longer commutes.—

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