Builders were far more active in April than they were the previous month, applying for more permits to build and breaking ground on more homes in nearly every region of the country, federal data released Friday show.
But for anyone looking to buy a home and struggling to find options within their reach, the picture is not as rosy as the top line suggests. The activity has been driven by what's known in the industry as the multi-family sector--for instance, large apartment buildings--rather than the single-family market, which is comprised of stand-alone, for-sale homes.
Commerce Department numbers showed that housing starts jumped 13.3 percent April from the previous month, to a seasonally adjusted annual rate of 1.07 million. Construction of single family homes made up a thin slice, increasing 0.8 percent. By contrast, construction of multi-family homes with at least five units jumped nearly 43 percent.
The same trend is unfolding in applications for building permits, a gauge of future construction. Applications were up 8 percent month-over-month to a seasonally adjusted annual rate of 1.08 million. Again, the gains came from the multi-family market. Permits for properties with at least five units rose nearly 22 percent, while those for single family homes increased a meager 0.3 percent.
So why aren't builders rushing to build for-sale homes if survey after survey shows that the desire to own is still strong? (A Fannie Mae survey earlier this month found shows that most younger renters prefer to own.)
They fear the desire won't translate into demand. Mortgage rates have climbed. First time home buyers, the bedrock of the housing market, have retrenched. The younger set -- loaded with student debt and struggling with underemployment – may not be able to save for a down payment or qualify for a mortgage with lending standards remaining tight. And prices have soared in the last two years.
Of course, if builders built more homes, that could pull down prices and stir demand. But builders themselves are facing higher costs for materials and labor. And it's not so easy for them to get approved for the permits in some pockets of the country, especially in land constrained-areas. Builders' confidence in the single family market fell in May to its lowest point in a year.
In the past year, virtually all the additional households formed were renting, said David Crowe, the NAHB's chief economist. (About 333,000 of the 423,000, he said, citing Census Bureau data.) So it's no wonder that about 90 percent of the multi-family units being built are for-rent properties.
“The real loss in power in the construction side of the economy is the single family side,” Crowe said. “The multi-family component of our industry is virtually back to where it as before the collapse. The single family is only half way back.”
Builders are apparently sizing up the money-making potential in the single family market, and saying: No thanks.
In a note to clients, economists at IHS Global Insight say that's creating a "tale of two housing markets." As the shift toward renting continues, “the current stock of apartments is insufficient to satisfy demand, sending rents soaring across the country and making multifamily units an attractive investment for developers and landlords,” economists Stephanie Karol and Patrick Newport wrote.
Even so, buying remains cheaper than renting in all of the 100 largest metro areas, according to an analysis earlier this week by Jed Kolko,
But there are exceptions, especially in coastal areas, where homeownership is out of reach for the middle class, Kolko wrote. Seven of the 10 least affordable markets are in California. The San Francisco area, where only 14 percent of for-sale homes are within reach for the middle class, topped the list followed by the Los Angeles and Orange County regions.
There's partly a vicious cycle at play: home prices are high, so people can't afford to buy homes. Builders don't build homes because they don't see people purchasing. And the housing inventories remains low, pushing prices still higher.
“There’s no easy way to make housing more affordable,” Kolko wrote,"though new construction can help."