New Housing Starts Fall, Dimming Hopes for Recovery

Hopes for a revival in home construction were dampened Thursday, with reports that new housing starts fell sharply in March following an unexpected rally the month before.

The Commerce Department reported that new housing starts fell 10.8 percent in March, to a seasonally adjusted rate of 510,000 units. That comes on the heels of a 17.2 percent increase in February that had spurred hopes that a recovery was underway.

New building permits declined in March as well, by 9.0 percent to an annual rate of 513,000, further evidence that a rally has yet to take hold.

Drop in multiunit construction blamed

The March decline was wholly due to a sharp drop in new construction starts of multiunit apartment buildings, according to the Commerce Department data. Starts of apartment buildings of five or more units fell by 42.6 percent, to 116,000 units from 202,000 the month before.

The data suggests that February's rally may have been a statistical anomaly. The monthly survey results are subject to fairly high margins of error, and may vary widely from what the actual numbers are. The Commerce Department cautions that it may require three to five months of data to get an accurate picture of actual trends.

Single family construction steadies

From that perspective, March's data on new apartment construction represents a near-return to the 119,000 units estimated to have begun construction in January. On the other hand, new construction of single family homes has remained rock-solid over the past three months, remaining at 356,000-358,000 from January through March, suggesting that part of the market may have stabilized, although at a low rate. Single family starts are down nearly 50 percent from March 2008, when they were estimated at 711,000 units.

One factor that may be depressing multiunit apartment construction is the large numbers of failed condominium projects that are being converted to rental units in the wake of the foreclosure crisis. The real estate research firm Reis, Inc. reports that such conversions appear to be a significant factor in a rising vacancy rate for apartments despite record foreclosures that should be driving more people to become renters.

January's estimated rate of 488,000 new housing starts represented the lowest number since the end of WWII; the March figures are the second-lowest. Compared to one year before, new housing starts are down nearly 50 percent from the 988,000 estimated to have begun in March 2008.