Housing Report Shows Falling Inventories, Changing Market
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Every three months, the Census Bureau issues a report with more textured data on home construction than they provide with the monthly data.  The report breaks down building activity by purpose and design.  Census issued this report late last week and we take several key points from the annual figures for 2011.  The data show the market is moving rapidly toward rental construction and that inventories of new homes have reached extremely low levels.  And the best news – the total square footage of new home building actually increased by 2% in 2011, the second consecutive annual increase and a sign that building activity has likely bottomed.
  • 431,000 single-family homes were started in 2011, a drop of 8.5% from 2010.  Given the recent turn in housing starts, 2011 was likely the bottom for starts.   

  • Of the 431,000 single-family starts, 289,000 were built for sale.  The rest were built by owners or contractors and will not show up as new home sales in other data.  New single-family home sales in 2011 were 313,000, which was more than enough to absorb the 289,000 built for sale.  As a result, builders of single-family homes are still reducing inventories. 

  • The average square footage of single-family starts was 2,505 in 2011, just slightly below the peak in square footage in 2007.  The median square footage of homes is 2,267, which is a record high.  In other words, builders may be shying away from constructing the very largest homes of the boom era, but the typical single-family home size has rebounded.

  • 178,000 multi-family units were built in 2011, a 53.4% increase from 116,000 in 2010.

  • Almost all of the increase in multi-family construction was for units built for rent, which made up 91% of multi-family starts in 2011, a record high going back to 1974.  A more typical rental share is 75%. 

  • All of the increase in multi-family construction in 2011 was due to buildings with 10 or more units.   

  • The average square footage for multi-family starts was 1,141, the lowest since 1999 (when data started to be collected).  The median square footage also declined in 2011, but was not particularly low versus the 1999-2010 period.  The shift toward smaller units in the multi-family sector is probably a result of the higher share of rental units.  When someone buys a unit in a multi-family building they probably want more square footage than if they rent.   

The total square footage of homes started – single-family and multi-family combined – was up 2% in 2011, the second consecutive increase.  Total square footage plummeted 75% from 2005 to 2009. 
Posted on Tuesday, February 21, 2012 @ 9:41 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.