Multifamily Construction Permitting Levels Down 21% - RAOT Week of November 24th 2024

This is a weekly narration of our weekly Rent and Operating Trends Report.

Existing home sales picked up in October

Based on a report from the National Association of Realtors, existing home sales increased 3.4% from September to 3.96 million in October on a seasonally adjusted annual basis. The annual volume of home sales had declined in six of the previous seven months. Sales were up 2.9% compared to October 2023.

The median existing home price increased 4.0% at a national level, but it was up 7.6% in the Northeast and 7.2% in the Midwest. Prices were up just 0.9% in the South. The West was in between those rates at 4.4%.

Interestingly, multifamily operational performance this year has had a similar theme in the regional rankings. The Northeast and Midwest regions have consistently been the strongest. Many markets in the West have rebounded, and the South has several markets that continue tostruggle from an imbalance of supply and demand. 

The pickup in home sales occurred after the first of two recent interest rate cuts by the Fed, but mortgage rates have increased steadily since the end of September. 

Permitting levels for multifamily are down 21% from a year ago

According to data from the Census Bureau and HUD, the total number of residential units permitted during the last 12 months was down 7.7% from the prior year. The drop was almost exclusively driven by a decline in the multifamily industry. 

There were 393,000 multifamily units permitted in the 12 months ending October 2024 on a seasonally adjusted basis. It was one of the lowest levels in the past decade, and it was down 20.9% from 497,000 units permitted in the year ending October 2023. The decline will set up a period of fewer deliveries in the coming years, and it will likely lead to improved operational performance in many markets.

Single-family permitting was down just 1.8% from the prior year with 968,000 units permitted in the last 12 months. Looking at all types of residential construction, the Midwest region had the biggest gains in the last year with an increase of 10.9%.

Numbers to watch this week

Even with the Thanksgiving holiday this week, there are still some notable reports that will be published. 

The Conference Board released its Consumer Confidence Survey today, which includes surveys completed after the U.S. presidential election. 

The Personal Consumption Expenditures Index, which is the Fed’s preferred measure of inflation, will be released on Wednesday.

The Bureau of Economic Analysis will publish its second estimate of GDP for the third quarteron Wednesday. The initial estimate was 2.8% growth, which was down slightly from the previous quarter, but was still considered to be at a strong level. Consumer spending is the biggest driver of GDP growth, and the Census Bureau recently revised retail sales upward for the month of September. 

Multifamily Highlights

Operational metrics remained steady from the prior week, with slight declines due to normal seasonality. National annual effective rent growth had a slight tick downward after last week’s report of flat growth, but annual changes in effective rents and occupancy should turn positive by early 2025.

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https://bit.ly/Radix_Website