Homeownership Seen Threatening New Apartment Construction | Armonk NY Real Estate

Record housing starts, bolstered by multifamily construction, is a sign that demand may not keep up with capacity and strengthening homeownership will threatening the boom in multifamily construction, according to one of the nation’s leading ratings services.

U.S. home building climbed to the highest level in 19 months during November and last month increased 9.3 percent to a seasonally adjusted annual rate of 685,000 from October, the Commerce Department said yesterday. The results were better than forecast. Economists surveyed by Dow Jones Newswires expected housing starts would rise by 0.3% to an annual rate of 630,000.

The increase with most of the increase in housing starts coming from multifamily construction in November was driven by a 25.3 percent increase in multi-family homes with at least two units, a volatile part of the market. Construction of single-family homes, which made up about 65 percent of the market, rose only 2.3 percent.

But the Commerce Department data confirmed Fitch Rating’s expectation that the housing market continues to gain traction, increasing the likelihood of moderating multifamily demand growth. Housing permits, a proxy for future construction, were up 27 percent and 4 percent higher on a year-over-year and quarter-over-quarter basis, respectively, for November 2012.

In a report issued last week (”U.S. Equity REITs: The Key Issues for Multifamily”), Fitch estimated that 80 percent of the growth in demand for multifamily properties from 2009-2011 was attributable to the decline in the home ownership rate. Looking forward, Fitch expects decreasing rental affordability and the increasing relative/absolute attractiveness of home ownership will cause multifamily demand and operating fundamentals to more closely track economic growth. Today’s data supports Fitch’s expectation that a recovery in housing is underway.