According to recent figures released by the Commerce Department, the multifamily market lifted total housing starts 3.0 percent in October to a seasonally adjusted annual rate of 1.229 million units as the downswing in the single-family housing market continued. Total starts were down 16.4 percent from a year earlier.
"Builders continue to do what they absolutely have to do in this market downturn. They are repositioning themselves for the market's eventual recovery by cutting back on production and working down their inventories," said Brian Catalde, president of the National Association of Home Builders (NAHB) and a home builder from El Segundo, Calif.
While single-family housing starts dropped 7.3 percent for the month to a seasonally adjusted annual rate of 884,000 units, the lowest monthly production rate since October 1991 and 25.1 percent below October 2006, the pace of multifamily construction was 19.4 percent above October 2006.
"Real estate investors like multifamily properties, especially when residential markets are experiencing volatile times," said Michael Anderson, CCIM RealSource Principal Broker, whose firm works with developers on building income-generating commercial real estate. "The idea for builders, as well as for us, is to break ground in markets that not only have strong economic factors today but also will show strength three-to five years down the road."
The Commerce Department report showed that regionally, starts of new homes and apartments were up in the Northeast, Midwest and West by 8.5 percent, 21.1 percent and 5.8 percent, respectively. Housing starts were down in the South by 4.6 percent.
"The Commerce report surprises me a bit because I know firsthand that the South is doing quite well for hundreds of our real estate investor clients," said Anderson, who completed $500 million in transactional volume in 2006 and 2005. "First, we look at the markets, or the Metropolitan Statistical Areas, and then we narrow our choices down to submarkets or zip codes that make the most sense."
According to Forbes Magazine's largest 100 metropolitan areas, which they based on five data points -- unemployment rate, job growth, income growth, median household income and cost of living for 2006 -- the South was represented but markets were sprinkled throughout the country. They were: Salt Lake City, Raleigh (NC), Phoenix, Jacksonville (FL), Orlando, Tulsa (OK), Austin, Albuquerque, Wichita, and Oklahoma City.
"Overall, we are extremely bullish on the U.S. apartment market for the next seven years," explained Anderson. "While we feel for those suffering as a result of the sub-prime situation, approximately ninety-five percent of the total loan value today is not at risk. It is this basic fact that the baby-booming consumer needs to understand and appreciate and the overriding result will be optimism, not negativity, about real estate investing and a barrage of echo-boomers entering the income property markets either as renters or investors."
If you are involved in real estate, you have heard the mantra, "location, location, location" Typically, it refers to a residential buyer but in a dynamic market like this it also applies to the importance of market timing and market identification for builders. Keep building, green preferably, but do so where it makes the most sense for generating increased profits.
