NEW YORK CITY—Amid what their new report calls “a bumpy ride toward normalization,” Barclays economists see new housing starts taking their time to reach equilibrium. Against that backdrop, multifamily construction will be a bright spot, with the sector's share of housing starts rising to 35% during the next two years and averaging 475,000 units by the end of the fourth quarter of 2016. That compares to an average of 20% of housing starts per year between 1994 and 2006.

“2014 was a bumpy year for the US housing market,” Michael Gapen, chief US economist at Barclays, said Tuesday on a conference call discussing the report. With starts largely flat from the year prior and inventory levels similarly changed little from 2013, the year was “generally a disappointment.” He added, however, that the housing sector proved itself “fairly resilient to significant shocks,” a favorable sign for the sector's overall health.

The current year, though, will pose a real test of the sector's resiliency, said Gapen. “As monetary policy normalization appears to be within the horizon of our 2015-16 housing outlook, mortgage interest rates promise to remain an important factor in determining housing demand and residential investment,” according to the Barclays report.

That being the case, however, Gapen observed that the housing market is in “a different cyclical position than is normally the case.” Where normally housing's recovery keeps pace with that of the general economy, it's lagging this time, which should help the sector better withstand mortgage rate increases.

The general picture for the next two years remains one of “subdued growth,” said Gapen. The slower momentum carrying over from last year, coupled with expectations for higher mortgage interest rates, lack of credit availability and deteriorating affordability, likely will restrain both starts and sales, according to Barclays.

Accordingly, Gapen and his Barclays colleague, economist Blerina Uruçi, predict in their report that the housing recovery will be “choppy and shallower than before,” while the slower momentum in price appreciation will continue through the year. “That said, modest trend improvement would lead us to characterize housing as normalized by the end of our forecast horizon.”

A longer-term trend has been a slowdown in household formation. While it averaged 1.2% per year between 1990 and 2005, it has averaged only 0.6% annually since then.

“That said, labor market conditions can improve household formation for some age cohorts,” the report states. “In particular, recent Census data suggest this is improving among young adults. Our outlook implies that this trend should continue, boosting housing demand for multifamily properties in the quarters ahead.”

Gapen offered some thoughts on why multifamily has established such a firm grip within the overall housing sector. Amid the credit crisis, he noted, households transitioned “from ownership into rentership.” He described this as a result of the “unwinding of the bubble,” and a byproduct of the overbuilding of single-family homes. The aging-up of the population is also a factor in generating long-term demand for apartments, while tight credit conditions—expected to ease, but only slightly—also argue in favor of renting.