Multifamily Permits Fall as Starts Bounce

Multifamily permits dropped in February, while multifamily starts rebounded.

February’s seasonally adjusted annual rate (SAAR) for multifamily permitting dipped 4.3% from January to 404,000 units, down almost 16% from last year. Meanwhile, annualized multifamily starts jumped 12.1% from last month to 370,000 units (still down 6.6% from last January), according to the latest report from the U.S. Census Bureau and the Department of Housing and Urban Development.

While generally trending downward lately, the SAAR for multifamily starts shows more volatility than the not seasonally adjusted data series for starts.

Comparing the two series, the SAAR tends to overcount starts when they are on an upward trend and undercount them on the downward trend. However, the two series tend to be in closer alignment at the peak of the series, just as they appear to be in the past few months, perhaps indicating multifamily starts are approaching the trough for this cycle.

Supporting this trend is the fact that multifamily units under construction were down 21% from last January but have leveled off from last month to 754,000 units. Multifamily completions were down 20.7% for the month and 15.8% for the year to 512,000 units.

Higher home prices, interest rates and building costs have dampened single-family development as well, with a 3.4% decline in annualized permitting in February from last year to 992,000 homes, about even with January’s SAAR. Annualized single-family starts showed the same volatility as multifamily with a 2.3% decrease from last February but an 11.4% increase from last month to 1.108 million units.

Single-family completions increased 7.1% to 1.066 million units, down 1% for the year, while single-family units under construction were unchanged from last month at 640,000 units, down 6.7% for the year.

Compared to one year ago, the annual rate for multifamily permitting decreased sharply in the small Northeast region (down 72.1% to 39,000 units) and fell 22% in the West region (to 63,000 units). Permitting increased for the year in the Midwest region (up 23.5% to 101,000 units) and South region (up 13.7% to 201,000 units). Compared to the previous month, permitting was down in all but the Midwest Census region.

Annualized multifamily starts also decreased sharply in the Midwest region (down 66% to 28,000 units) and moderately in the South region (down 14.6% to 162,000 units) but were up in the Northeast region (up 61.4% to 53,000 units) and in the West region (up 40.3% to 126,000 units). Compared to January’s SAAR, starts were down only in the Midwest region.

This post is part of a series by RealPage Senior Real Estate Economist Chuck Ehmann analyzing residential permits and starts data from the U.S. Census Bureau. For more on this data, read previous posts in the Permits series.