US DATA
Housing starts and permits data continue to show a slowdown in overall construction activity, with a bifurcation between strong single-family activity versus a deteriorating multi-unit (ie apartment) segment.
- Housing starts came in well below expectations at 1.289M on a seasonally adjusted annual rate in November (1.325M expected, 1.312M prior), just a 4-month low, but that month - July 2024 - had the fewest starts since the pandemic shutdown. Conversely, permits came in stronger than foreseen at a 9-month high 1.505M (1.43M expected, 1.419M prior).
- Multi-unit activity was a major drag on starts, falling 84k (outweighing single-family rising 61k), though multi-unit permits jumped 85k, accounting for the upside surprise in overall permits (single family fell 1k). It's hard to know what to make of this, though they are volatile figures, and multi-unit starts have consistently under-run permits (November's starts of 278k were one of the lowest prints of the last decade). As such we see no reason to think there is a nascent revival in apartment building.
- The clearest sign of a multi-unit drag comes from the actual number of units under construction, the total of which fell to the lowest level since August 2021 (1.434M). Total completions fell to a 6-month low of 1.601M, well off the June peak of 1.725M. Multi-unis under construction hit a 33-month low (797k, down 22k) vs a downtick in single-family under construction (637k, down 5k).
- For the past decade, multi-units have made up the majority of units under construction, peaking at an all-time high 60% last year - that's down to 55% with single-family regaining ground (prior to 2013 single homes were the vast majority of units under construction).
- The stabilization in single family permits/starts has translated into positive estimates for residential investment growth in the GDP accounts for Q4 (Atlanta Fed's GDP Now at 4.7%), following two quarters of contraction.
- We reiterate though that mortgage market dynamics are key: higher funding rates make large-scale residential investment more costly vs rental yields, whereas high mortgage rates and low-rate lock-ins by homeowners have reduced existing home sales to multi-decade lows and encouraged homebuilders to cater to single-family building.
- Without a meaningful pullback in long-end rates, it's hard to see a rebound in multi-family activity, suggesting a medium-term drag.
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