Monthly drop is due to a 12% decrease in single-family units, somewhat offset by a 17% gain in the multifamily sector.

By Manuel Gutierrez, Consulting Economist to NKBA

New residential construction pulled back in January to an annual rate of 1.58 million homes – a 6% decline from the previous month. Despite this drop, the rate of housing starts in January still outpaces the total number started in 2020, shown by the dashed horizontal lines in Figure 1. Last year’s annual total is shown in the figure just above the dashed line.

In fact, the annual rate of housing construction each month since August has exceeded last year’s annual total of 1.38 million homes. January starts alone were 200,000 units higher on an annualized basis.

The drop in January starts was caused by a sharp 12% decline in the single-family component, somewhat offset by a 17% jump in multifamily starts. Single-family typically accounts for between two-thirds and three-quarters of all new housing.

Although the Department of Commerce releases multifamily housing data for small buildings — those with two to four units — and larger ones with five or more units, Figure 1 indicates that the vast majority of multifamily housing is in larger buildings. Most of those buildings have between 25 and 30 units.

Three of the four U.S. regions started fewer units in January than during December. The Northeast was the only one in positive territory, with 2% more new starts than the prior month, up to an annual pace of 134,000 units. However, that region’s new housing market is relatively small, accounting for less than 9% of the nation’s total housing starts.

Two regions, the Midwest and the West, saw sizable declines — exceeding 11% — in housing starts. Those two regions combined accounted for four in ten new U.S. houses.

The South, the nation’s largest region, which generally accounts for more than half of all new housing, had a modest 2% drop in housing starts.

Housing Starts & Permits

While the vast majority of housing permits lead to housing starts within 30 days, a number of new houses may be built more than a month after the permit has been issued. Housing permits are usually taken as an indicator of future housing construction.

Thus, January’s 10% jump in housing permits to 1.88 million units might suggest strong housing construction in the first quarter. However, the strength in permits originated in the multifamily sector, which increased by 27% to 612,000 units, while single-family permits were up just 3.8%.

In a typical month, multifamily permits account for less than a third of the total. In January though, their smaller numbers still contributed three-quarters of the total gain.