Residential Starts Decline In Economic Recovery's Late Stages

Real estate players suspect the housing market has peaked and is heading modestly lower this year with new data that shows residential starts are down for the single family and multifamily sectors.

NEW YORK CITY – The housing market has always been a leading indicator of economic activity. And many in the commercial real estate arena suspect that it is likely to have peaked and is heading modestly lower this year with new data that shows residential starts are down for the single family and multifamily sectors, Kim Kennedy, director of forecasting for Dodge Data Analytics, a research and software firm, tells GlobeSt.com. “We are in the very late stages of the current economic recovery,” she said.

Recent data shows that for the month of October total residential starts were down 2% to $311 billion at a seasonally adjusted annual rate. Single family housing dropped 7% to $225 billion, while multifamily was up 14% to $86.6 billion. Single family housing is much larger than multifamily housing, and its decrease was enough to offset the increase in multifamily starts – causing total housing to decline modestly, according to Kennedy.

While the numbers are representative for the month of October, they point to a year-to-date decline in construction for the asset class, which tells a clearer picture of the subsectors. Year-to-date through 10 months, total housing is down 6%, single family is down just 3%, while multifamily is down a stronger 12%.

The single-family market is expected to fall to a smaller extent in an anticipated downturn because it didn’t recover as much as multifamily over the past decade, which grew stronger and actually exceeded its last peak, so it is likely to decline to a larger extent, Kennedy said.

However, solid real estate fundamentals show that construction activity should maintain at a modest level. “In total, housing is probably going to see only a small decline overall,” she added.