April Housing Starts and the Builder Pivot to Multifamily

The April new residential construction print is out, with total housing starts down 2.8% month-over-month to a 1.47 million annualized rate. The composition of that print is where the more interesting read sits.

Single-family starts fell 9.0% to 930,000, and single-family permits dropped 2.6% for the second consecutive month. Multifamily starts (i.e. 5+ unit buildings) rose 14.3% month-over-month and 23.3% year-over-year to 529,000, a three-year high in the segment. Multifamily permits surged 22.7% to 514,000. Per Realtor.com's Joel Berner, builders are shifting away from single-family homes, which they have struggled to sell at the prices they want, toward larger multifamily projects with higher margins.

Berner raised the question worth carrying forward: whether homeownership will become more attainable for future generations if the delivery of housing units today is skewing toward rentals. Paired with an increasing disconnect between salaries and cost of living, the composition of the U.S. housing pipeline is shifting toward rental product – precisely at a moment when affordability is already the primary headwind for both for-sale and for-rent demand.

The regional layer adds nuance. Starts in the South pulled back 11.0% month-over-month, while the Northeast (+16.1%), West (+5.0%), and Midwest (+2.5%) all gained. The South still authorized the most permits (~756,000), so the pullback reads as near-term softening rather than a directional reversal. However, the largest regional decline came from the same growth corridor that drove the last cycle.

The rate environment is the proximate driver. Per TD Economics, the 30-year fixed mortgage rate sits near a one-year high, and markets are pricing roughly a 60% chance of at least one Federal Reserve hike by year-end. That backdrop is what is pushing builders toward rental delivery and away from for-sale, and it does not look like it reverses in the next two quarters.

Source: RISMedia

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