Chart: Apartment builders are pulling back while single-family homebuilders hold steady

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There continues to be a divergence between single-family homebuilding, which has proven more resilient since mortgage rates spiked in 2022, and multifamily construction, which is pulling back as capital markets have become less willing to finance projects since rates spiked.

Indeed, on a year-over-year basis, single-family housing starts are down -0.5%, while multifamily (5 units or more) starts are down -12.6%.

Annualized rate of single-family housing starts:

October 2018: 872,000

October 2019: 898,000

October 2020: 1,180,000

October 2021: 1,087,000

October 2022: 858,000

October 2023: 975,000

October 2024: 970,000

Annualized rate of multifamily (5 units or more) housing starts:

October 2018: 330,000

October 2019: 422,000

October 2020: 342,000

October 2021: 475,000

October 2022: 560,000

October 2023: 373,000

October 2024: 326,000

While multifamily starts have rolled over significantly over the past two years, multifamily completions have been hovering around multi-decade highs over the past two years. The reason being that many of these recent multifamily completions were projects financed back during the ultralow interest rate window during the Pandemic Housing Boom.

Heading forward, many housing analysts expect multifamily completions to follow multifamily starts down, and begin to rollover in 2025.

What about single-family homebuilding?

“Looking ahead to 2025, my baseline expectation is that single-family home construction is poised to steadily increase, bolstered by modest declines in financing costs for builders and buyers and by the scarcity of existing homes due to the mortgage rate lock-in effect,” writes Odeta Kushi, deputy chief economist at First American.

Headwind for homebuilders’ bottom line: Construction wages

According to an analysis published this month by the National Association of Home Builders (NAHB), they found that the average hourly wage of residential building construction workers spiked 10.8% between August 2023 and August 2024. That’s the biggest year-over-year construction wage jump in the U.S. Bureau of Labor Statistics’ data series, which goes back to 2001.

“The ongoing skilled labor shortage in the construction labor market and lingering inflation impacts account for the recent acceleration in wage growth,” wrote NAHB.

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*Information contained herein, although believed accurate and compiled from credible sources, is not guaranteed. There can be no assurance the business objectives of the Company will be achieved. Investors may lose all or part of their investment and distributions with respect to such investment are not guaranteed. Past performance is not indicative of future returns.