Construction Industry Forecasts

Multi family developers are responding to the nearly 1.8 million added jobs in the last seventeen months. The slim 43,000 jobs added in the last two months will temper multi family permits and starts in the second half of the year but will not deter developers from proceeding with starts already underway as long as apartment rents continue to inch higher.

The 9.4% rise in June single family starts does not lift this market off the long cyclical bottom.  The June count is slightly below the 2010 monthly average. June single family starts at 453,000 were about 10% above June permits and the year to date monthly permit average.  The June gain could be random and might be revised away.

The earlier recovery in the multi family sector is not surprising. Renters can sign a contract with less income, less secure income, poorer credit and much less savings than homeowners need to sign a contract.

The latest reports on the single family housing market still show that both homebuilders and prospective buyers are too cautious to permit a rapid recovery in housing starts.  The NAHB monthly index of builders’ sentiment about prospect prospects remains stuck at a depression level. The number of single family homes under construction and the number being completed have both been stuck as a record low level for six months.  Prospective homebuyers have seen their purchasing power cut by commodity inflation and have heightened concerns that resolution of the federal crisis could cut their entitlement payments, raise their taxes or reduce their private income in a slower growth economy.

Single family starts are still expected to rise modestly this summer and then more quickly late in 2011 and in 2012. This is partly due to the second quarter ending on an upturn and partly due to an expected recovery in the economic growth rate from near zero early in the spring to as least subpar during the summer.