Housing Starts: A Multi-Family Affair

By Douglas A. McIntyre Updated Feb 17, 9:22PM EST · Published Feb 17, 1:47PM EST

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The US government has just issued housing reports. Housing starts rose to a seasonally adjusted 591,000 equating to a 2.8% increase. That is the best report we have seen since last summer. This data proved good enough a for a market rally this morning. Does this point to the end of bad housing data? A closer look within the housing start components says probably not.

The Street has focused on the overall number of housing starts. Yet a look at the multi-family component of the number may tell a different story. Multi-family (Apartment) starts for January made up 107,000 of the 591,000 number. That is a 9.2 percent increase for multi-family representing 18% of the January housing starts increase. What does the multi-family increase say about the housing market?

It is an indicator of demand at the lower end of the market. Think of it in terms of downward mobility.

If a consumer losses, or fears loosing, a job or income stream they move down to something more affordable. Job losses and foreclosures have created a strong demand for apartments because that’s where people have to go. Take a closer look within the multi-housing number. Starts of multi-unit homes exceeding 4 units increased 17.6% last month. There is a simple answer to explain this data; consumers move to what they can afford and apartments are cheaper than duplexes. The market is telling you that the lower the end of the market (Especially the low-end rental market) has the highest demand. Add this to the recent highs in mortgages delinquencies (Recent TransUnion report) and a seasonally adjusted 4.9% decrease in building permits for January and you have good indications of more bad numbers to come.

The Housing market operates on a long-term supply/demand curve in a marketplace that is far less efficient than the stock market. The real-estate market is already trying to digest record revels if inventory.

The stronger the low-end market demand the longer it will take to digest the overhang in the market. Look for increased low-end demand in the housing market and don’t bet on a housing turnaround anytime soon.

Steve Gear

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.