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Apartments lead housing market back?

A group of apartments in New York City

TEXT OF STORY

Kai Ryssdal: We've all learned to take what appear to be positive economic indicators with a grain of salt the past year or so. And today's no different. We learned this morning the number of new homes under construction shot up in February, 22 percent over the previous month. The grain of salt here is this: The report for that previous month -- January, is another way to say that -- was a drop to a record low. So a bounce is great, as long as it's kept in perspective. What is interesting, though, about the February report is that much of the increase was because of the number of apartments being built. We asked Ashley Milne-Tyte to find out whether apartments might be leading the housing market back.


ASHLEY MILNE-TYTE: Anyone thinking of celebrating should probably put the champagne back in the fridge. Mike Larson is a real-estate analyst with Weiss Research. He says the construction of single-family homes increased just one percent in February. As for that jump in apartment starts...

MIKE LARSON: It's not surprising to see a 20 percent decline one month, a 40 percent rise the next month, and so on. Because you may have one or two buildings that have so many units, if they happen to get started in a certain month, it skews the overall numbers.

Housing starts surged in the Northeast and Midwest. Larson says both those areas had mild Februarys. Maybe another reason why so many homes were started. Steve Malpezzi teaches real estate at the University of Wisconsin. He says construction of new homes is near an all-time low, but that's not necessarily a bad thing.

STEVE MALPEZZI: We don't want it to turn around too soon, because prices are still soft, probably going to fall a little bit more. And we don't want to start adding to supply until we're seeing prices firm up.

He says low prices means fewer sellers and less construction, which is bad for the whole economy. So, says Mike Larson, we should leave the cork in that bottle of bubbly until we see some steady improvement in starts, especially of single-family homes.

LARSON: If we see a noticeable turn that lasts a couple of months in permits, if we see a couple of months worth of stronger starts, then I think we have something to latch onto, but I don't think we've seen that yet.

He says completed buildings are nothing without buyers. And in the end the housing market's recovery depends on higher demand.

I'm Ashley Milne-Tyte for Marketplace.

About the author

Ashley Milne-Tyte is the host of a podcast about women in the workplace called The Broad Experience.

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