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Townhouse segment grows amid demand for entry-level homes

By Mike Wheatley | March 14, 2019

The construction of townhomes outperformed that of other building types into 2018, introducing more entry-level housing inventory to the market, according to the National Association of Homebuilders.

What’s more, despite a slight downturn in townhome construction towards the end of the year, the NAHB says the sector will expand further in 2019 as demand from renters looking to buy increases.

The benefits of 2 bedroom townhomes extend beyond simply providing more options to first time buyers. For example, they help builders to deal with problems such as the scarcity of available building lots, as well as demand for neighborhood walkability.

In 2018 there were 119,000 townhome starts, up 14 percent from the previous year. Indeed, townhouse construction grew five times faster than the overall single-family home segment did in 2018. The market share of townhouses stands at 13.8 percent of all single-family starts, near a post-recession high. In contrast, the peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when it reached 14.6 percent of total single-family construction.

“The share for townhouse construction is expected to increase in coming years, with occasional ups and downs,” the NAHB notes on its Eye on Housing blog. “The long-run prospects for townhouse construction are positive given large numbers of home buyers looking for medium density residential neighborhoods, such as urban villages that offer walkable environments and other amenities.”

More single-family construction overall, however, is coming to the market as the spring homebuying season starts to heat up. The U.S. Commerce Department reported on Friday that total housing starts increased 18.6 percent in January to a seasonally adjusted annual rate of 1.23 million units. Broken out, single-family starts rose 25.1 percent to 926,000 units, while the multifamily sector—which includes apartment buildings and condos—increased 2.4 percent to 304,000. “The bounce-back in single-family starts mirrors our builder confidence surveys, as sentiment fell in the latter part of 2018 but rebounded in January after mortgage rates showed a notable decline,” says Greg Ugalde, the NAHB’s chairman.

Regionally, combined single-family and multifamily starts in January rose 58.5 percent in the Northeast, followed by a 29.3 percent increase in the West, and a 13.8 percent increase in the the South. Housing starts fell 5.7 percent in the Midwest.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
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