Slowdown noted in multifamily construction as lenders tighten credit, oversightThe renovation of existing structures in the Martin Luther King Jr. Historic District continues to add value to the neighborhood. Credit: David Pendered
By David Pendered
The once white-hot construction market for multifamily residences in the Southeast is showing signs of cooling, according to builders cited in the Beige Book released Wednesday by the Federal Reserve’s Atlanta District. Lenders report they are increasing their oversight of loans for multifamily projects.
Developers tend to keep a positive outlook and they didn’t throw a big bucket of water on the current construction cycle. But they told Federal Reserve analysts:
- “While most reports indicated that the pace of multifamily construction matched or exceeded the year-ago level, a growing share of contacts reported that multifamily construction is down. Looking forward, the majority of District commercial construction contacts expect nonresidential construction activity to increase in the second quarter, while expectations for the pace of multifamily construction was mixed.”
The banking and finance sector reported closer scrutiny of the multifamily industry:
- “Lenders increased oversight of construction loans and were growing more cautious in multi-family lending.”
This came against a backdrop of continuing restrictions on credit and a trend toward refinancing:
- “Credit remained readily available for most qualified borrowers, although some small businesses continued to experience difficulty obtaining loans. Contacts noted that regulatory capital requirements constrained commercial and construction lending at some banks, and most commercial lending activity revolved around refinancing.”
This cooling multifamily sector in the Atlanta District is arriving just as the single-family sector continues to improve, or at least hold its own.
Residential developers reported their activity is up from the same period in 2016. The number of potential buyers who tour homes is up as well, according to builders and brokers.
Here’s how the Beige Book characterized their anecdotal reports:
- “Most builders noted that construction activity was up from the year-ago level. Many brokers and builders reported an increase in home sales relative to one year earlier. The majority of builder and broker contacts said buyer traffic was up from the previous year’s level.”
Residential contacts noted that inventory levels were unchanged or down compared to the year-ago level:
- “Both builders and brokers indicated modest gains in home prices. Home sales expectations were positive, with most brokers and builders anticipating sales will increase slightly over the next three months relative to the year-earlier level. Most builders expect construction activity to hold steady at the current pace or increase slightly over the next three months.”
But the slowdown in multifamily construction in the Atlanta District isn’t nearly as bad as other regions, including New York: “New starts of single-family homes have remained subdued, while new multi-family construction has slowed substantially.”
The other districts reported their housing sector as follows.
In the Richmond District: “Multifamily building continued at moderate levels; however a few lenders noted that fewer new developments were being approved for financing.”
In the Chicago District: “Residential building rose moderately, led by growth in the single-family segment. … Contacts in the Chicago area believed that the market was cooling some, while a contact in West Michigan indicated that the market was the strongest it has been for some time.”
In the St. Louis District: “Residential real estate activity has declined modestly since the previous report. … Residential construction improved modestly since the previous report.”
In the Minneapolis District: “Strong multifamily housing development continued in many District markets.”
In the Kansas City District: “Sales of low- and medium-priced homes outpaced sales of higher-priced homes.”
In the Dallas District: “Financing for new multifamily properties remained difficult to obtain.”
In the San Francisco District: “Supply shortages and strong demand continued to fuel rapid home price growth in most parts of the District; contacts in urban centers reported that bids routinely came in significantly above the asking prices.”