Both single-family construction in October, and multifamily housing construction in the third quarter, struggled, according to analysis by The National Association of Home Builders. 

Single-family construction held steady in October as high mortgage rates depressed demand but more buyers turned to new homes because of a lack of existing inventory.

Overall housing starts increased 1.9% in October to a seasonally adjusted annual rate of 1.37 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. 

The October reading of 1.37 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 0.2% to a 970,000 seasonally adjusted annual rate. However, single-family starts are down 10.6% year-to-date. The multifamily sector, which includes apartment buildings and condos, increased 6.3% to an annualized 402,000 pace.

“Despite higher interest rates in October, the lack of existing home inventory supported demand for new construction in the fall,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “Builders continue to grapple with elevated construction costs and growing concerns about regulatory costs."

“The construction data in October continue to reflect that despite multidecade lows for housing affordability, the market continues to lack attainable inventory that only the home building industry can provide,” said NAHB Chief Economist Robert Dietz. “And with the 10-year Treasury rate now back in the 4.5% range, we are forecasting gains for single-family home building in the months ahead and an outright gain for construction in 2024.”

On a regional and year-to-date basis, combined single-family and multifamily starts are 22% lower in the Northeast, 11.2% lower in the Midwest, 7.8% lower in the South and 15.3% lower in the West.

Overall permits increased 1.1% to a 1.49 million unit annualized rate in October. Single-family permits increased 0.5% to a 968,000 unit rate. However, single-family permits are down 10.6% year-to-date. Multifamily permits increased 2.2% to an annualized 519,000 pace.

Looking at regional permit data on a year-to-date basis, permits are 19.5% lower in the Northeast, 16.7% lower in the Midwest, 11.3% lower in the South and 15.8% lower in the West.

There are currently 669,000 single-family homes under construction, down almost 15% from a year ago. In contrast, there are more than one million apartments under construction, near the highest total since 1973.
 

Multifamily housing
Confidence in the market for new multifamily housing was in negative territory for the third quarter, according to results from the Multifamily Market Survey (MMS) released today by the National Association of Home Builders (NAHB). The MMS produces two separate indices. The Multifamily Production Index (MPI) had a reading of 38—well below the break-even point of 50—for the third quarter while the Multifamily Occupancy Index (MOI) reading was 82.

The MPI measures builder and developer sentiment about current production conditions in the apartment and condo market on a scale of 0 to 100. The index and all its components are scaled so that a number below 50 indicates that more respondents report conditions are poor than report conditions are good. 

The MPI is a weighted average of four key market segments: three in the built-for-rent market (garden/low-rise, mid/high-rise and subsidized) and the built-for-sale (or condominium) market. In the third quarter, sentiment about production of mid/high-rise apartments was weaker than the other market segments. The component measuring garden/low-rise units had a reading of 45, the component measuring mid/high-rise units had a reading of 28, the component measuring subsidized units had a reading of 39 and the component measuring built-for-sale units had a reading of 32.

Although the re-designed MPI is too new to compare quarter-to-quarter changes, a separate question on the survey indicates that the multifamily market has deteriorated noticeably since the second quarter. In answering that question, 33% of multifamily developers said overall market conditions for multifamily were worse in the third quarter, compared to only 5% who said it was better.

The MOI measures the multifamily housing industry's perception of occupancies in existing apartments on a scale of 0 to 100. The index and all its components are scaled so that a number above 50 indicates more respondents report that occupancy is good than report it is poor. 

The MOI is a weighted average of three built-for-rent market segments (garden/low-rise, mid/high-rise and subsidized). In the third quarter, sentiment about occupancy in mid/high-rise apartments was weaker than the other market segments. The component measuring garden/low-rise units had a reading of 84, the component measuring mid/high-rise units had a reading of 74 and the component measuring subsidized units had a reading of 89.

“High operating costs are creating problems for existing properties, especially affordable properties, and the cost and reduced availability of credit is making it difficult to finance new projects,” said Lance Swank, president and CEO of Sterling Group, Inc. in Mishawaka, Ind., and chairman of NAHB’s Multifamily Council. “It should also be noted that the garden/low-rise market is doing much better than the mid/high-rise market, both in terms of construction and occupancy rates.” 

This is consistent with NAHB’s tracking of the geography of apartment construction, which finds more construction in lower density markets that are more likely to be garden/low-rise buildings. The NAHB Home Building Geography Index finds that over the last three and half years, the share of apartments built in core counties of large metros has fallen from 41.7% to 37.4%. In contrast, the share of apartments built in small metros, exurbs and rural markets has increased from 31.3% to 35.6%.

“The relatively weak MPI is consistent with the declining production levels seen in the second half of 2023 and NAHB’s projection that they will be lower still in 2024,” said NAHB Chief Economist Robert Dietz. “Surveys by both NAHB and the Fed indicate that cost and availability of credit for builders and developers has become a major headwind for new construction.”