Single-family homes are up by over 6% in October, with 90% of growth in the South and West.
By Manuel Gutierrez, Consulting Economist to NKBA
Housing starts in October were up a strong 4.9% over the previous month, translating into an annual pace of 1.53 million units. Over the past few months, following April’s pandemic low of 934,000 units, housing construction has recovered to just 5% below the January pace of 1.62 million houses.
October’s boost to housing construction was attributable to the single-family sector, which was up 6.4% for the month to 1.18 million homes. Multifamily construction was flat in October, with a total of 351,000 units built. This is the result of 11,000 fewer units built in large buildings, that is, buildings with five or more housing units. This was offset by an increase of 17,000 more units in small buildings, those with two to four dwellings.
Single-family starts, which have risen every month since April, reached their highest annual pace since early 2007. Unlike that earlier period, however, when sub-prime loans to borrowers with questionable credit were all too common, today’s borrowers are on more solid footing.
The latest Federal Reserve Bank survey of loan officers, issued this month, revealed that banks have tightened standards for loans to consumers, for real estate as well as for other loans.
The largest two regions, the South and West, were instrumental in boosting housing starts last month. The pace was strongest in the South, with housing starts climbing 13% for the month to an annual rate of 869,000 units.
Starts in the West, the second largest region in terms of new housing volume, rose by a more modest 4% to a 374,000-unit annual pace. These two regions accounted for 87% of houses started in the month of October.
Year-to-date through October, a total of 1.15 million houses have been started, up 6.7% from the same period last year. Note that this is the actual number of housing units started, in contrast to the data charts above that reflect monthly data expressed as annual rates.
Building Purpose for New Construction
New houses are built with a specific purpose in mind. Many of the new houses are built “for sale,” although a number of them, primarily in multifamily buildings, are built to be used as rental units.
In the case of single-family homes, the vast majority are built with the purpose of selling them. An analysis of all single-family homes started in the third quarter revealed that 77% of them were built with the express purpose of selling them. They are either built as spec homes or built directly off a model home in a subdivision. Another 12% of houses started were under contract, that is, the contractor built the home for a specific homeowner on the homeowner’s lot.
Finally, some homes — just 6% in the third quarter —are built by the homeowner acting as the contractor. In the last two instances, there is no sale transaction and these homes do not show up in monthly new-home-sales data.
For housing units in multifamily buildings, a similar pattern is evident. The only difference is that the units are built either for rent, which are the majority, or for sale as condominium units.
Units built for rent currently account for 96% of the total, a percentage that has been increasing since the 2007-2009 economic recession. During that recession, many homeowners lost their homes and were forced to become renters, boosting the demand for rental units. The percentage of renters rose from 31% of all households in 2006, to 36% by 2017.
