February 17, 2025

Hello, everyone. I’m Michael Feuz, economist and speaker here at ITR Economics, filling in once again for Taylor St. Germain. Today, I actually received, a client reached out and asked a question, they noticed that recently, for those of you who are Trends Report subscribers, that you might have seen that we had a adjustment to our U.S. Multi-Unit Housing starts outlook moving forward. So, wanted to talk about what that change is, what drove it, and if you are in this space, how to approach planning your business to attack this vertical to find the opportunities this year.

So, overall, U.S. Multi-Unit Housing Starts through 2024, came in down 24.9% from 2023. It was a total of about 354,000, not quite 355,000 starts for the year. Now, originally, we pulled this forecast down a pretty significant amount. It’s a downgrade of about 18 to 20%. Big question is, what drove that? We still expect some growth this year, but most of this year to be characterized as recovery, but there will be areas of opportunity. Factors for the downgrade, obviously, persistently high interest rates, but a few other areas of note.

First, we noticed if you look at total U.S. Rental Vacancy rates, it’s continuing to rise. On a three-month moving average, it’s at 6.9%. Now, similar on a monthly average, it’s about 6.9% as well. Now, this is still below the 2010 decade average, which was about 7.9%. That still shows there is a, we’re not quite back to the previous level so there is still some room for growth but a consistent steady rise in vacancy rates certainly shows there’s a little dampening of the demand is continuing there.

Now there still is some inventory catch up to do but not quite as much as maybe was previously expected or anticipated. A lot of this continuing to be due to the persistent financial headwinds with the stabilizing yet certainly still elevated from what we thought what we’re used to interest rates.

Additionally looking at US Rental Vacancy Inventory that is also rising on both a three-month moving average and 12-month moving average basis. Showing again this expanding inventory of available rentals will again put downside pressure on the new starts for the multifamily. Now that 12/12 for the rental vacancy is in a phase C, that’s slowing growth, we’re starting to see it come down, but that’s still growth. So again, seeing that downside pressure on the previous expectations for the Multi-Unit Housing Starts.

Pivoting, looking at Residential Architecture Billings Index, another indicator. Now the 12/12 here, when we’re looking at a rates of change scale, is in a phase B. This is suggesting that the general trend of still recovery and eventual growth in the Multi-Unit Housing is still the general trend we’re expecting. But when we look at that index, if it’s below 50, that suggests there’s still contraction. Going above 50 would be growth. And it’s currently sitting below 50 on the index scale, suggesting further that the growth will be muted and probably a longer period in that phase A recovery before we get into that phase B accelerated growth and more accelerated rise in the housing starts.

Lastly, looking at multifamily permits, they are as well in a phase A recovery. The 1/12 with overall US multifamily permits just went above the zero line and just crossed into that phase B. But both on a 3/12 basis and a 12/12 basis, they’re still in a phase A recovery. That 12/12 is down still about 15% below year ago levels. And overall, that 12-month moving total for multifamily housing permits has generally plateaued the last three months. It looks like it’s nearing a low point. It’s been in decline. That decline has more or less plateaued, but we haven’t seen rise start to take hold, even though you do often see rise take hold in phase A recovery., we haven’t seen that occur yet.

Now thinking about if your business, if you do operate in the multifamily construction space, is there are still pockets of opportunity. The key is to do your market research. While we’re sharing these national trends, it’s important to keep in mind, all construction is regional. So understand your regions, do your due diligence there, understand where the opportunity is, or maybe that there’s risk and there needs to be a pivot or leaning into other construction verticals to offset the lack of opportunity potentially in 2025.

Now we still expect some growth this year in multifamily housing, but it wasn’t, again, that significant pullback. Our overall outlook now is for just about 0.2% this year. So more or less kind of plateauing through this year. Now, looking farther out, 26, we expect more growth, about 5.3% growth compared to 2025. B ut just be aware, do your due diligence, understand your markets, and I’ll leave it there for now. So again, my name’s Michael Feuz, economist and speaker here at ITR Economics. Looking forward to joining you again on future TrendsTalks, but Taylor St. Germain should be back with you next week.