Dive Brief:

• Starts for buildings with five or more units fell to a seasonally adjusted rate of 383,000 in September, a 31.5% year-over-year decline, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. 
• Developers pulled permits for 459,000 units in buildings with five units or more in September, a 31.6% decrease YOY. They completed 445,000 units during the month, which was a 15% YOY increase.
• Overall housing starts fell 7.2% in September to 1.36 million units. Single-family builders broke ground on 963,000 homes in September, an 8.6% increase. 

Dive Insight:

The relative strength of the single-family market was a surprise to some observers, including National Association of Home Builders Chief Economist Robert Dietz. However, citing the recent decline of builder sentiment in the NAHB/Wells Fargo Housing Market Index, he would not be surprised if single-family starts were adjusted downward in the coming months. 

“Despite ongoing challenges for affordability in the market, the housing deficit of resale inventory continues to provide some market support for builders,” Dietz wrote in a blog post. “Because of a lack of existing homes in the marketplace, 31% of homes available for sale in August were new construction. This compares with a historical average of 12%.”

Dietz expects the number of apartment units under construction to fall in the months ahead.  The slowdown in starts, in addition to a high number of completions, will mean fewer contractors will be working on multifamily projects in the coming months. 

This decline in five-plus unit starts has been occurring for a while, according to CoStar's National Director of Multifamily Analytics Jay Lybik. “When you look at the three-month moving average now, it's continually moving down pretty significantly now,” he told Multifamily Dive.

Although the Federal Reserve’s decision to initiate interest rate hikes in early 2022 began to chill the market, banking failures, including those at Silicon Valley Bank and Signature Bank, accelerated the slowdown.

“Those failures set up a situation in which pretty much all of the money center and regional banks really pulled back construction lending significantly,” Lybik said.

Click here to sign up to receive multifamily and apartment news like this article in your inbox every weekday.