Apartment Construction Hits 28-Year High, Lifting Housing Indexes

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The Commerce Department said Friday that housing starts in June climbed 9.8% to a seasonally adjusted annual rate of 1.17 million homes. All of that growth came from a 28.6% surge in multifamily housing that put apartment construction at its highest rate since November 1987. Starts for single-family houses actually slipped 0.9% last month.

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An Associated Press report said that strong job growth and a rebounding economy have increased the number of buyers and renters searching for homes, while gradually rising mortgage rates have spurred homeowners to finalize deals. The Wall Street Journal also noted that rental-apartment vacancies remain near multi-year lows, and lease rates have risen by 10% in the past three years to the highest monthly average ($1,194) since research firm Reis Inc. began tracking the figures in 1980.

Apartment/Condominium Boom

The boom in apartment and condo construction is regional, however. Housing starts jumped 35.3% in the Northeast, while climbing 13.5% in the South. In the Midwest and West they were actually down.

Home construction numbers are notoriously volatile, so these numbers could be revised downward later. Friday’s report showed new-home construction fell 10.2% in May from the prior month, compared with an initially reported 11.1% drop. Starts in April rose 24.7%, an upward revision from a previously reported 22.1% increase.

Financial distress also played a role, leaving more Americans renting instead of owning, creating need and demand for apartments. The share of Americans owning homes has fallen so far this year to a seasonally adjusted 63.8%, the lowest level since 1989.

What Does This Mean for Metal Buyers?

A strong domestic demand for multifamily construction is good news for metals such as copper and structural steel. Approved building permits increased 7.4% to an annual rate of 1.34 million in June, the highest level since July 2007. This means a steady need for metals in pipes, conduits and structural members as well as new apartments.

The National Association of Home Builders/Wells Fargo builder sentiment index released Thursday climbed to 60 this month, a level last reached in November 2005. Readings above 50 indicate more builders view sales conditions as good rather than poor.

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