Multifamily steps up to fill the housing gap
Wednesday, April 25, 2018
With little relief in sight, sales and starts of single-family homes tumbled in March. Would-be homebuyers faced with fewer choices, along with rising prices and interest rates, are opting to continue renting for the time being or to purchase more plentiful and often more affordable townhouses, condominiums and co-ops. That has given a boost to the multifamily sector, which rebounded strongly in the first quarter of this year.
Overall, sales of existing homes increased for the second month in a row in March, but at a slower pace than in February, 1.1 percent vs. 3.0 percent, respectively. Single-family home sales, however, remained relatively flat (up just 0.6 percent, and down 1.0 percent compared to last March), constrained by bad weather and continued shortages of available and affordable inventory.
The median sales price of a single-family home ($252,100) is now nearly 6 percent higher than it was a year ago. Condo and co-op sales, although also lagging behind last year's figure, rose 5.2 percent for the month, following a 6.5 percent decline in February. Condo prices have risen more slowly and often are more affordable for first-time buyers. The median sales price for an existing condo in March was $236,100.
Scarcity of existing homes for sale helped push sales of new homes in March up 4 percent to their highest level since last November. The U.S. Commerce Department also revised figures for February upward, thus improving the first-quarter performance numbers. New home sales ended the month 8.8 percent higher than they were a year ago.
The median price of a new home reached $337,200 (up 4.8 percent from last March). However, the average sales price was $369,900, well above the affordability level of many prospective homebuyers.
Wintry weather may also be partly responsible for the weakening in single-family building activity in March. While residential construction rose by nearly 2 percent for the month, new single-family construction starts (in units) fell by 3.7 percent, following a near 3 percent increase in February.
In addition, single-family permit requests experienced their biggest monthly decline in seven years, down 5.5 percent, and completions dropped 4.7 percent. Multifamily starts, on the other hand, soared 14.4 percent, lifting industry activity for the year to nearly 11 percent above the same period last year.
Noting the volatility in construction figures from month-to-month due to the influence (or lack) of large projects, Dodge Data & Analytics reported a 2 percent decline in the value of residential construction in March, largely due to a 7 percent drop in the value of new multifamily projects. However, that came on the heels of a 6 percent gain in January and a whopping 36 percent hike in February. The value of single-family construction remained unchanged, holding more or less the same pace for the past several months.
Despite the rather tepid start to the year, builders remain optimistic about business conditions going forward. The National Association of Home Builders measure of builder confidence, the Housing Market Index, which had been at or above 70 for the previous five months, dipped just one point in April.
"As we head into the spring home buying season, we can expect the market to continue to make gains at a gradual pace," observed NAHB Chief Economist Robert Dietz, citing the bad weather in parts of country as a dampening factor in March.
On the consumer side, demand for buying a home remains strong, with both Fannie Mae and the National Association of Realtors reporting prospective buyers were feeling positive in March about current home market conditions. However, many of those potential buyers may have to wait.
The long-range trend, according to MetroStudy's most recent five-year residential economic forecast, is for a continued environment of undersupply and increasing costs that may not level out for several more years.
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