Economy Watch: Multifamily Starts Hot, Single-Family Starts Not

Posted on February 17, 2011

Housing starts spiked in January to an annualized rate of 596,000 units, according to the U.S. Department of Commerce on Wednesday. That was a 15 percent increase compared with December.

But not all kinds of housing are on equal footing these days. Leading the way in January were multifamily projects. In fact, an increase in multifamily starts offset a drop in single-family housing starts, a market that faces the same set of problems it has for some years now–high unemployment, tight lending standards and a gut of foreclosed properties on the market. Multifamily properties have no such problems; demand is up and supply is still constrained.

Single-family starts were down 1 percent to an annualized rate of 413,000, while the multifamily starts jumped from an annualized 103,000 in December to 183,000 last month. Building permits for all kinds of housing dropped 10 percent to a 562,000-unit annualized pace in January.

Inflation fears making a comeback

This time last year, the economic worry du jour was deflation. Deflation was a hard nut to crack back in the 1930s, and prognosticators were vexed about its potential return in the 2010s. Now, in the clear light of hindsight, it doesn’t look like deflation is going to be a problem going forward.

Inflation, on the other hand, is now on the minds of dismal scientists and anyone who buys gasoline. The specter of a 1930s revisit has been replaced by fear of the return of the 1970s. With some reason: According to the U.S. Department of Labor on Wednesday, the core Producer Price Index (wholesale prices) rose by 0.5 percent in January, a rise that excludes food and energy. Include those categories and the rise was 0.8 percent.

Commodities have been going up quite visibly–think oil but also metals, cotton and other raw materials. Will producers of finished goods be able to pass along some of these costs in 2011? Now that the economy’s improving, they might be able to do just that.

FOMC slightly more optimistic

Minutes from the Federal Reserve’s January policy-setting meeting were released on Wednesday, revealing that the central bank now predicts that U.S. GDP will be up between 3.4 percent and 3.9 percent in 2011. The minutes also showed that the Fed isn’t overly worried about inflation. The FOMC continues to expect “subdued inflation trends,” gas and cotton undies notwithstanding.

Wall Street gyrated a lot on Wednesday, but always in positive territory. The Dow Jones Industrial Average ended up 61.53 points, or 0.5 percent, while the S&P 500 gained 0.63 percent and the Nasdaq jumped 0.76 percent.

By Dees Stribling, Contributing Editor for Multi-Housing News