Pulled down by a marked decline in multifamily construction, housing starts fell for the second consecutive month in August, another sign that the once-torrid real estate market, particularly condos, could be cooling.
Overall, housing starts fell 1.3 percent in August compared with July. While single-family starts rose 0.1 percent, the rate for multifamily starts, representing complexes of five units or more, fell 12.3 percent month over month, the Commerce Department said. Housing starts fell 4.5 percent from August 2004 to August 2005.
It was the second consecutive monthly decline in multifamily starts, which fell 5.6 percent in July from June. At this rate, about 256,000 multifamily units will be built in 2005, down from a revised estimate of 312,000 at the June 2005 rate, according to Commerce Department projections.
"The trend is down," said economist Greg Leisch, chief executive of Delta Associates, an Alexandria real estate research company. "It shouldn't be surprising to us. The housing market is moderating, taking a breather. It's been on record levels a record period of time."
A decline in multifamily construction may not be good news for renters and first-time buyers struggling to afford housing, Leisch said, "because the more we can produce, the more we can dampen price."
David Seiders, chief economist of the National Association of Home Builders, cautioned that the "apparent downshift . . . may not be anything fundamental," because builders are still seeking permits for new construction of multifamily units, albeit at lower rates than in previous months.
Overall housing starts and housing permits both fell in August, the Commerce Department said. At this rate, about 2.01 million homes will be built in 2005, down from an annualized rate of 2.03 million in August 2004. Single-family housing starts, however, rose slightly, climbing 0.1 percent to an annualized rate of 1.7 million houses.
Builders sought permits at a rate of 2.12 million units, down 2.2 percent from July 2005 but still 3.2 percent higher than the August 2004 rate.
In the South, which includes the Washington area, overall housing starts fell 6.6 percent in August from July, but they were up 0.3 percent from August 2004.
The Commerce Department statistics reflect declining economic optimism among builders. A home builders association survey released Monday that gauges builder perceptions of market conditions found that 65 percent viewed the market positively, down from 72 percent in June.
"Many builders appear to be taking a more cautious attitude because of uncertainties in the economy and this post-Katrina environment, particularly with regard to sales expectations in the near term," Dave Wilson, the association's president and a home builder from Ketchum, Idaho, said in a statement.
Celia Chen, director of housing economics at Economy.com, said that the statistics show "some softening is creeping in," but that the "level of activity is still strong." She said Katrina's effects are likely to cause housing starts to fall off next month but will likely lead to an uptick in construction activity later in the year when rebuilding efforts gain speed.
"Definitely there will be a rebound in starts due to rebuilding in the Gulf Coast," Chen said.