A surge in construction of multifamily dwellings in April propelled U.S. housing starts to the highest level in five months, helping overcome slack demand for single-family homes.
Housing starts climbed 13.2 percent to a 1.07 million annualized rate following March’s 947,000 pace, according to figures released today by the Commerce Department in Washington. Another report showed a measure of consumer confidence unexpectedly declined from a nine-month high.
An almost 40 percent increase in construction starts on projects such as condominiums and apartment buildings accounted for almost all of the April gain, as single-family activity was held back by declining affordability. The report highlights a shift in demand for housing in the wake of the financial crisis, which left many Americans wary of taking on new debts.
“What’s been notable since the housing crash is how much construction is aimed at meeting demand for rental housing,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York. “There’s been a trend away from homeownership that’s persisted even as the pace of foreclosures has slowed. What we can see is that higher home prices, particularly for new homes, have weighed on demand.”
The Thomson Reuters/University of Michigan preliminary sentiment index decreased to 81.8 from 84.1 in April. The median projection in a Bloomberg survey of economists called for a gain to 84.5.
Stocks were higher after the reports, with the Standard & Poor’s 500 Index rising 0.1 percent to 1,871.70 as of 12:18 p.m. in New York. The yield on the benchmark 10-year note rose one basis point, or 0.01 percentage point, to 2.5 percent.
Housing starts exceeded all analysts’ forecasts, with the median estimate of 79 economists surveyed by Bloomberg calling for 980,000. Building permits climbed 8 percent to a 1.08 million annualized pace, a sign activity might accelerate in coming months.
Multifamily construction in the U.S. has surged from a 50-year low in 2009 as developers seek to accommodate rising rental demand, spurred in part by tight credit for homebuyers and a tide of foreclosures in the housing crash. The national apartment-vacancy rate was 4 percent in the first quarter, the lowest since 2001, according to New York-based Reis Inc.
Effective rents, or what tenants paid after any landlord concessions, averaged $1,089 a month in the first quarter, up from $1,055 a year earlier, Reis said in a report last month. Gains have been led by technology and energy-driven markets with strong employment, such as San Jose, California, San Francisco, Denver, Houston and Seattle.
Bentall Kennedy U.S., a unit of Toronto-based real estate investment adviser Bentall Kennedy LP, is developing two Seattle apartment projects downtown that would total more than 500 units, along with new buildings in San Francisco, Chicago, Minneapolis, New York and Los Angeles, said Chief Executive Officer Michael McKee. Rentals in urban settings are particularly appealing for younger people who increasingly want to be close to work, he said.
“They don’t want mortgages, they don’t want long freeway commutes,” McKee said in an interview this week. “Companies still have these big campuses because they invested in them 10 or 15 years ago, but really, the young people want to be in the city.”
Multifamily construction starts jumped to a 423,000 annual rate from 303,000 in March, while work on single-family properties rose 0.8 percent to a 649,000 rate in April from 644,000 the prior month.
Home construction increased in every region, led by the Midwest, with a 42.1 percent increase. Starts jumped 28.7 percent in the Northeast, 11.1 percent in the West and 1.5 percent in the South.
Confidence among homebuilders dropped in May to the lowest level in a year, indicating the residential real estate market may be slow to recover after an unusually harsh winter, data showed yesterday.
The National Association of Home Builders/Wells Fargo builder sentiment gauge fell to 45 this month, the weakest since May 2013, from a revised 46 in April that was lower than initially reported, figures from the Washington-based group showed today. Readings less than 50 mean fewer respondents report good market conditions. The median forecast in a Bloomberg survey called for 49.
“Single-family is still concerning,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, who had forecast 1 million housing starts. Still, “we’re seeing job growth pick up, income growth pick up, and now there’s talk of loosening up credit for home purchases,” and those “should contribute to a pick-up in single-family activity.”
Borrowing costs, which climbed in the second half of 2013, are stabilizing. The average 30-year, fixed-rate mortgage was at a six-month low of 4.21 percent in the week ended May 8, according to data from Freddie Mac in McLean, Virginia. The average from July through December was 4.37 percent.
While increasing prices are hurting affordability for those getting into the market, they also help homeowners feel wealthier. Real estate data provider Zillow Inc. sees those prices keeping up their climb.
“For almost all of the country, home values are increasing,” Chief Executive Officer Spencer Rascoff said on a May 7 earnings call. “The rate of growth is slowing, but it’s still a very healthy housing market.”
The latest data from S&P/Case-Shiller in New York showed an index of property prices in 20 U.S. cities increased 12.9 percent from February 2013, the smallest advance since August, after a 13.2 percent gain in the year ended in January. March data are due for release May 27.
(An earlier version of this story corrected the spelling of HSBC Securities USA Inc.)