Experts believe that multifamily starts in 2012 will hit their highest totals in a few years. But in May, the volatile starts number, which had been moving up 10 percent to 30 percent each month, actually fell.

Starts were down 24 percent from April. And year over year, they fell even further, down 32 percent. Overall, May starts were 28 percent below average for the last 20 years, but still remain 8 percent above the 2011 average.

Even more telling could be the permitting data. Permits increased 18 percent from April, making it 46 percent higher than the 2011 average, but still 7 percent to 10 percent below the 10- and 20-year averages, according to a report from Keefe, Bruyette & Woods (KBW), a New York-based investment banking and security brokerage firm.

“Our expectation that multifamily starts will continue to increase is driven by the continued improvement in multifamily fundamentals and the net supply reductions in 2012,” the report said. “Notably, based on the prior development cycle trough to peak in the early '90s, it may take five years (implying 2014) to get to a level of starts that approaches peak levels over the past 20 years.”

But that doesn’t mean markets like Washington, D.C., Seattle, Austin, Dallas, Raleigh, N.C. and San Jose, Calif. won’t see new supply earlier. Eventually, KBW expects traditionally easy to build markets in Texas and the Sunbelt to add units as well. But from the sound of their report, the volatility of the starts numbers and the fact that starts and permitting still trail historical averages, those who don’t see oversupply becoming an issue anytime soon have some ammunition.

Do you agree? Or do you think oversupply could be an issue earlier than expected?