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Decline in Five-Plus Permits Reveal Potential Weakness
Starts in buildings with five or more apartments continued to hover in the neighborhood of 250,000 (at a seasonally adjusted annual rate) in September. Technically, the Census Bureau's latest release shows the five-plus starts rate increasing by 5.8% — from 240,000 to 254,000. At the same time, however, the Census Bureau revised its estimate for August down by 11,000 (the estimate for July was similarly revised downward by 10,000), so the preliminary five-plus starts rate for September is very close to the number originally reported last month for August.
Compared to the drastic declines that have hit single family production, a five-plus starts rate of 254,000 may seem relatively healthy, but there are signs of future weakness. The darkest cloud on the horizon is the rate at which new five-plus permits are being issued. The five-plus permit rate for September came in at 225,000 — down 17.6% from an already weak August number, and 37% year-over-year. In fact, 225,000 is the lowest the five-plus starts rate has been since 1994. This (along with responses received from multifamily builders in NAHB surveys) is one of the main reasons the NAHB forecast shows five-plus production declining by 23% — down to 218,000 units — in 2009, before beginning a modest rebound to 237,000 units in 2010.
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