A condo here, a condo there

Multifamily housing starts surge. What happened to the housing bubble?

Published June 21, 2006 5:58PM (EDT)

Yesterday's announcement by the Department of Housing and Urban Development that housing starts had jumped by 5 percent gave ammunition to those who believe that the real estate market is subsiding slowly, at worst. Judging by some headlines -- housing starts rebound! -- you could be excused for wondering whether there is anything to worry about at all.

But what's behind the numbers? Each new release of data gives us a chance to learn a little bit more about the ins and outs of the housing market, and this particular set of statistics is no exception.

Step one, always compare the month-on-month stats with the year-on-year numbers. And sure enough, while May's housing starts were better than April's, they were worse than last May's. The overall trend line for the last year continues to point down.

But let's drill a little deeper. As James Picerno at the Capital Spectator observes, two-thirds of the jump in housing starts was due to a hefty -- 25 percent -- surge in multifamily housing starts. And multifamily housing statistics, we are informed, are well known to be particularly volatile.

If you scan press accounts of housing start data, you will find that references to the volatility of multifamily housing start data are commonplace. But rarely do you see an explanation of why.

"Multifamily housing" includes everything from duplexes to high-rise apartment buildings. In this case, the big jump is for structures that include five units or more. Turns out, construction of such structures is highly dependent on a specialized set of factors -- zoning decisions, changes in the tax code, speculative investment activity, et cetera.

Particularly in urban areas, breaking ground on a new condominium development or high-rise means jumping through an endless line of hoops. But since all the units that will eventually be built are counted as soon as a project is started, just a few new projects can mean a significant difference in overall housing start numbers, month to month. Thus, the volatility. A 25 percent surge in multifamily housing starts doesn't necessarily imply that the housing market is on the rebound. It just documents that a bunch of projects that have long been in the works finally got off the ground.

And that's your housing bubble data update for this week.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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