The stock market rallied on Tuesday, due in part to better-than-expected news about new home building. Housing starts, a statistic that indicates when ground is broken on a new house, soared to a five-month high in June. They jumped significantly, up 15% from May. But the story here is a complex one, as single-family homes aren't benefiting as much as multi-family dwellings.

Here's a chart that separates out these two sub-sectors of the home building market, based on Census Bureau Data:

starts 2011-06 by subsector.png

Let's start in the 1990s. There, you can see wild growth in single-family starts (red line), tripling from their 1991 low. Multi-family starts (green line) also increased at that time, but then hit a plateau around 1995 -- when the housing bubble really began to inflate. Predictably, the bubble's pop hit the single-family home building market much harder than it did multi-family construction, though both declined.

The sub-sectors' paths since the market collapsed also look different. Single-family building jumped initially with the home buyer credit, but then collapsed again. It hasn't really recovered since. But multi-family building has been slowing ramping up since hitting its 2009 low.

This phenomenon has been noted over the past several months when starts have risen. June was no exception. Although starts increased by 15% overall, the performances of single- and multi-family home building were very different. Single-family starts were up 9%. That's certainly not bad, but it's no where near the 32% jump for multi-family starts during the month.

We should expect to see this trend continuing in the months that follow. Too many single-family homes were built during the bubble. As the homeownership rate declines, you'll also have fewer families purchasing homes. Although some of these single-family homes may be converted into rental properties, others will remain on the market or in banks' shadow inventory. In the meantime, the demand for new multi-family properties should slowly grow, as more Americans look to rent.

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