February 17, 2011 (Jeff Alan)

The latest Commerce Department figures show that January was a weak month for the new home market as both construction starts and building permits declined for single family homes. The silver lining in the report was that construction starts on multifamily buildings of five units or more skyrocketed almost 80 percent above December 2010 levels.

New building permits for single-family homes were down 4.8 percent from December, while construction starts were down 1.0 percent. The seasonally adjusted annual rate of 417,000 construction starts for single family homes was the lowest reported since spring 2009, at the height of the economic downturn. Compared to January 2010 levels, single family construction starts and permits are down nearly 20 percent.

On the other hand, construction starts for multifamily buildings, including apartments and condominiums, rose to an annual rate of 171,000 units. However, building permits were down 22.4 percent for the month, which suggests a decline in future activity.

Analysts had expected a drop in building permits as the number of permits issued in December 2010 surged as builders rushed to apply for approvals before new building codes came into effect.

Combined, builders began work on homes at a seasonally adjusted rate of 596,000 units, up almost 15 percent from December 2010, but far below the 2 million plus units during the height of the housing boom in 2005 and 2006.

The increase was far above expectations and entirely due to an increase in the volatile multifamily category, analysts said. Construction started on multifamily buildings was at the highest level in two years.

The increase in multifamily construction could be an early indication that builders are anticipating a rise in demand for rental properties due to the lingering housing crisis as tight lending standards and foreclosures are pushing more families towards renting. Builders of single family homes are facing depressed prices as a flood of foreclosures hit the market.

“The stand-alone home weakness is not a surprise given the massive excesses of the last decade, coupled with tight credit standards and the overhang of foreclosures,” independent economist Joel Naroff said in a note. “What is nice to see is that developers seem to be picking up the slack by putting up rental and condo units instead, a trend that is likely to continue.”

Tags: housing starts, single family homes, multifamily buildings, building permits, apartments, condominiums, foreclosures