The Census Bureau released the latest new residential construction data on Tuesday, June 16, which showed a 15.4 percent fall in housing starts in May compared to April and 8.7 percent year over year.
But perhaps the most eyebrow-raising number in the data was a massive 41.6 percent decline in multi-family starts month over month.
Maor Greenberg, co-founder and CEO of Spacial, an AI-powered structural engineering platform for residential construction and a 19-year veteran of the construction and real estate industries, shared the following comments about the latest data.
- The most surprising part of the data: “The size of the multifamily drop surprises me. A 41.6 percent one-month fall in apartment starts is dramatic, even for a series this volatile.”
- A multi-family pullback: “Housing starts were down 15.4 percent, which looks bad, but the entire drop is concentrated in multifamily projects. Apartment starts fell from 486,000 to 284,000 in one month. Single-family was 882,000, down 1.9 percent from April and statistically flat. So, the report shows a multi-family pullback. Single-family starts are what tell us where homebuilding is actually headed and they’re grinding lower slowly, rather than falling off a cliff.”
- Explaining the multi-family drop: “Rates, material costs and affordability are not three separate stories—they push in the same direction. Rates hit multifamily projects first because apartment projects run on construction loans and pro formas that only work at certain rates. When financing gets expensive and uncertain, that math breaks down and you get a 41.6 percent drop in apartment starts. A single-family home does not carry the same financing load.”
- Single-family plateau: “Single-family permits came in at 886,000 in May, slightly above April’s revised 881,000. So, this is a plateau, not a steady decline. But a plateau at the low end is not recovery. Builders are pulling roughly the same number of permits, not adding to the totals. Permits are the leading indicator for future starts and right now they point to a flat fall. With completion also slowing, the pipeline is not refilling, which means a quieter construction calendar over the last six months of the year.”
- The Bottom Line: “Fewer homes are being built and finished than they were a year ago, in a country that is already short on housing. Completions are down 14 percent from last May. The supply of new homes reaching the market is shrinking, not growing. For anyone trying to buy or rent, that means the affordability squeeze is not easing on the supply side any time soon. Tight supply keeps prices and rents supported.”
By Maor Greenberg, Co-Founder/CEO, Spacial
