Tuesday, July 19, 2011

Multi-family Starts and Completions

by Bill McBride on 7/19/2011 10:28:00 AM

Housing Starts increase in June

Although the number of multi-family starts can vary significantly from month to month, apartment owners have been seeing falling vacancy rates, and some have started to plan for 2012 and 2013 and have been breaking ground this year. So I've been forecasting a pickup in multi-family starts.

However, since it takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year - there will be a record low, or near record low, number of multi-family completions this year.

The following graph shows the lag between multi-family starts and completions using a 12 month rolling average.

Multifamily Starts and completions Click on graph for larger image in graph gallery.

The blue line is for multifamily starts and the red line is for multifamily completions. Since multifamily starts collapsed in 2009, completions collapsed in 2010.

The rolling 12 month total for starts (blue line) is now above the rolling 12 month for completions (red line), and they are heading in opposite directions. Starts are picking up and completions are declining.

To summarize:
• Multi-family starts will be up strong this year, but
• Multi-family completions will be at a record low.

It is important to note that even with a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI). Still this is bright spot for construction.