WASHINGTON – Apartment construction plunged sharply in October, as the pace of homebuilding slipped amid a broader cooling of the real estate market.
Housing starts — both houses and apartments— fell last month 11 per cent to a seasonally adjusted annual rate of 1.06 million homes, the Commerce Department said Wednesday.
Single-family house construction declined 2.4 per cent. Last month’s drop mostly stemmed from a 25.5 per cent slide in the volatile multi-family category that includes apartments, a sector had posted a sharp increase in September. The government also revised downward overall housing starts in September and August.
But many analysts see the housing market as expanding despite the recent gyrations.
“The trend here is still up nicely from last year,” said Stephen Phillips, president of Berkshire Hathaway HomeServices, who added that the housing starts data is “one of the most volatile and often revised statistics we see in the industry.”
Home construction has climbed 10 per cent year-to-date as solid levels of hiring have improved consumer confidence and encouraged more people to buy houses or move to new apartment complexes.
The additional construction marked a turnaround for a real estate sector that had been among the weakest pieces of the recovery from the Great Recession.
Yet the market’s upward trajectory now shows some signs of possibly stalling as rising prices, tight inventories and the economic uncertainty reflected in the stock market have sidelined many would-be buyers and renters.
Building permits rose 4.1 per cent in October to an annual rate of 1.15 million after falling in September. The rebound last month suggests that apartment construction, which accounted for the majority of the increase, could swing upward in the coming months as more Americans have turned to renting.
Nearly 33 per cent of buildings completed so far this year were apartment complexes and condo towers, compared to just 27 per cent before the start of the recession in late 2007. The recovery from that economic downturn over the past six years has reshaped the housing market as those who lost their homes to foreclosures and recent college graduates have moved into rental properties.
The percentage of Americans who own homes has fallen to nearly a 48-year low of 63.7 per cent.
This shift has unleashed so much multi-family construction that October’s decrease “could potentially be due to pockets of overbuilding that may exist throughout the country, as well as the cost spikes which make financing new buildings more difficult,” said Philadelphia-based developer Carl Dranoff, chief executive of Dranoff Properties.
And the growth in home sales enjoyed this year appears unsustainable without significant income growth. Relatively low supplies of homes on the markets have pushed prices upward, straining down payments savings.
Sales of existing homes jumped 4.7 per cent last month to a seasonally adjusted annual rate of 5.55 million, the National Association of Realtors said last month.
The housing market contains 4.8 months’ supply of homes, significantly lower than the six months associated with a strong market.
Tight inventories have fueled rising home values. The median home sales price was $221,900 in September, a 6.1 per cent annual increase.
An index of pending home sales slipped in September and builders are slightly less optimistic about sales going forward. The National Association of Home Builders/Wells Fargo builder sentiment index released Tuesday slipped in November to 62, down three points from a revised reading of 65 in October.
Readings above 50 indicate more builders view sales conditions as good, rather than poor. The index has been consistently above 50 since July last year.