A sharp increase in building permit applications for multifamily construction projects, while single-family starts dropped, indicates where the market is headed, Bloomberg reported.
Overall, new construction has picked up by 3 percent, but multifamily starts increased by almost 20 percent nationwide compared with a continuous drop in single-family starts over the past several months, according to U.S. Commerce Dept data.
The prominence of single-family construction is waning, hitting a low not seen since early 2022. Starts have fallen for four consecutive months.
Stephen Stanley, chief U.S. economist at Santander Capital Markets, told Bloomberg, “It would not be surprising to see single-family starts slide somewhat further going forward.”
The trend comes amid rising interest rates deterring buyers, as mortgage rates hover around 7 percent.
Builders have been forced to reduce prices and offer other incentives like buying down mortgage rates to encourage sales, Bloomberg said citing data from the National Association of Home Builders. The data indicates that about one-third of sellers have cut prices since June.
However, the broader multifamily market has its own troubles as recent data suggests multifamily loan distress is about to explode.
The Real Deal reported that the number of apartment deals delinquent or in special servicing and financed with commercial mortgage backed securities loans jumped 185 percent from January to late June.
Much of the floating-rate and short-term debt was attractive pre-pandemic, back when interest rates were low. Now that rates have increased, borrowers have struggled or failed to make loan payments and are having trouble refinancing.
— Christina Previte