Posted September 17, 2014

Though not buying homes, the 18- to 34-year-olds that comprise the "Millenials" are driving demand for multi-family construction, writes Jann Swanson in MortgageNewsDaily.com, pushing new construction to the highest monthly pace since early 2006 and apartment construction to the highest level seen in 25 years. Does the multifamily boom show up in the Builder Confidence Index? It jumped 4 points, hitting 59 - the highest level since late 2005, according to David Crowe, of the NAHB. 

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Under the headline "Builders Believe" in the assocation's Eye On Housing (find it here) Crowe says many of the builders commented on the renewed interest by potential home buyers, on higher traffic in their models, and via phone calls from potential buyers. The National Association of Home Builders/Wells Fargo indexes measuring current and future sales rose five and two points respectively; all four regions of the U.S. showed an increase, according to their surveys. This seems separate from multi-family demand. 

The September rise wipes out the early year slump, Crowe adds. New home inventory has increased to more than 200,000 - well short of what the industry saw in the late '90s and early 2000s. 

Which begs the question about Millenials and new homes vs. new apartments, though. Swanson's article referred to the September Public Outlook written by Freddie Mac's Chief Economist Frank E. Nothaft and Deputy Chief Leonard Kiefer. Click here to see the article with graphs. The authors concede that the recovery from the Great Recession has been "extraordinarily slow" but it has picked up over the last couple of years and that increasing recovery has been led by the multifamily sector, especially apartments, and driving particularly by younger households. 

The increased demand for apartments is, of course, a reciprocal of the decline in overall homeownership, which fell to 64.7 percent in the second quarter, the lowest rate since 1995. Indeed, over the past four quarters all growth in household formation has belonged to renters. 

Nothaft and Kiefer see the multifamily sector continuing to be the bright spot in housing. If the labor market continues to improve, helping increase household formatoins, it will translate into increased demand for apartments and other rental units.

For a similar article in HousingWire click here. 

While new, single-family home construction drove the previous boom (bubble), demand for apartments are the focal point in today's housing market. As long as contractors are busy, it's good news for contractors, rental centers and the economy.