The press was flush with reporting last week about strong housing data. It was one of just a few bright spots in the macro news. Elsewhere, subpar earnings announcements and a weak first quarter growth estimate from China pushed the S&P 500 to its largest drop since November.

The darling of commercial real estate, the multifamily sector dominated the housing starts data. From February to March, single-family starts declined 4.8 percent. But for properties with five or more units, starts jumped 26.9 percent and are 82.3 percent higher than a year earlier. For better and for worse, the rental market is still on fire.

Equating the Department of Commerce and HUD definition of multifamily with rental apartments is a common error that repeated itself in spades last week. It's convenient to assume the two numbers are not far apart. But the assumption does not hold over time. Nor is it a random walk.

Rental Share of Multifamily Starts and Completions How much of multifamily construction is attributable to apartments? Starts peaked at 95 percent of multifamily units in the second quarter of 2011. With few projects targeting the ownership market getting underway during the housing crisis, rental completions are only just coming off their cyclical high.

The pendulum swings in both directions, even if the center has edged closer to rentals. In the latter days of the housing boom, apartments' share of multifamily starts reached their nadir at less than half of all new projects; the construction lag followed eight quarters later. Condo completions peaked after the housing bust got underway. There's a lesson there.

As housing outcomes improve, an inflexion in development renders the multifamily equivalence assumption less tenable. Instead, the data augurs a shift in tenure bias, away from crisis levels of apartment demand and to the benefit of ownership. That's not to say the new normal for ownership is the same as the old normal. But for investors looking more than one step ahead, it's another indicator that apartment momentum is coming off its peak.

Instant Insights /

In Construction Numbers, Another Leading Indicator of Apartment Shift

Related Stories

Recommended For You