Dive Brief:

• While multifamily starts are expected to slow in 2023, developers in the sector remained busy in February, posting an “unexpectedly strong month,” according to Doug Duncan, chief economist at Fannie Mae, in a statement shared with Multifamily Dive.
• Multifamily starts increased 24% to an annualized pace of 620,000 units, according to a National Association of Home Builders analysis of Department of Housing and Urban Development and Census Bureau data. Permits also rose, jumping 21.1% to an annualized 747,000 pace.
• Apartments drove February housing starts up 9.8% to a seasonally adjusted annual rate of 1.45 million units, according to the Census Bureau and HUD. Single-family starts inched up 1.1% to a seasonally adjusted annual rate of 830,000

Dive Insight:

Currently, there are 957,000 apartments under construction across the country — the highest total since November 1973. Although February’s strong numbers were a surprise, Duncan offered a caveat.

“[The February starts] will likely cause an upward revision to our near-term multifamily starts forecast,” he said in a note shared with Multifamily Dive. “We note, however, that multifamily construction data is often volatile and the total may have been boosted by unseasonably warm weather in much of the country.”

Earlier in the year, the consensus was that it would be difficult for developers to find financing for new properties in 2023 as interest rates continued to rise.

“If you don’t have a deal already in process, or you just have some land, and you don’t have the entitlements, then you’re just going to press pause,” said Ryan Davis, CEO of Witten Advisors, a Dallas-based firm that provides apartment companies with advisory services.

The recent failures of Silicon Valley Bank and Signature Bank have muddied the outlook even further. The banking volatility could force the Federal Reserve to ease up on the interest rate hikes that had been predicted to slow apartment starts this year. 

It is conceivable that there will be no further rate increases this year, Anirban Basu, ABC chief economist, told Construction Dive last week. For instance, Japanese financial holding company Nomura expects the Fed to actually cut rates at its next meeting.

Still, it's hard to imagine that the banking situation would actually stimulate new starts. “There is also additional uncertainty regarding the impact of recent developments in the banking system on residential construction going forward,” Duncan wrote. “There is a risk that banks will tighten construction loan lending standards in an effort to manage liquidity, which could put a damper on future starts.”

Basu sees a similar situation: “With the likely tightening of financial conditions given the growing stress on America’s banks and ongoing efforts by the Federal Reserve to rein in excess inflation, commercial real estate and construction are likely to weaken further during the year ahead,” he said. “The current moment is, above all else, defined by uncertainty.”

Sebastian Obando contributed to this report.

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