Residential construction shot up significantly in March as homebuilders broke ground on the most multi-family homes in seven years, a report from the Commerce Department showed Tuesday.
Housing starts rose 7 percent from upwardly revised levels reported in February to a seasonally adjusted annual rate of about 1.04 million units, according to the Commerce Department, almost 47 percent higher than levels reported in March 2012.
Construction activity significantly outpaced projections from economists polled by Bloomberg, which put starts closer to 930,000. Starts reported in March also inched toward what economists consider a more normal level of about 1.5 million annual starts.
Builders are scrambling to respond to heightened demand for rental units, which has been credited with most of the gains seen in the housing starts in recent months and boosting broader economic growth.
"Today's report is a reflection of the solid demand that many areas are seeing for rental apartments as young people take that first step into the housing market, which is a very positive development," Rick Judson, chairman of the National Association of Home Builders and a Charlotte, N.C.-based home builder, said in a statement.
But work began on fewer single-family homes in March and permit levels pulled back, making the data a "mixed bag" according to NAHB Chief economist David Crowe, who characterized gains in the homebuilding sector "a continuation of the slow, methodical march forward."
John Tashjian, principal at New York-based Centurion Real Estate partners, says the rift between multi-family and single-family building also exposes the growing divide between the recovery of specific markets versus the broader housing market.
"The increase in housing starts, specifically apartments and condominiums, points to the relative strength of specific 'boom markets' such as New York City and Miami versus the overall U.S. housing market, which includes single-family home construction," Tashjian said in an email. "A lagging consumer confidence in the purchase of new single-family homes as opposed to rental apartments is also a factor."
The lukewarm news on housing starts comes on the heels of NAHB's measure of builder confidence released Monday, which showed the fourth consecutive month of more negative sentiment among builders. Experts blamed lagging supply chains in building materials, a lack of developed lots available, and fewer construction workers for the more-sour attitude among the homebuilding community.