Housing Starts Appear Back on Track
Housing starts posted a healthy jump in June, signaling perhaps some relief for tight housing inventories, HUD and the Census Bureau reported yesterday.
The report said privately owned housing starts in June rose to a seasonally adjusted annual rate of 1.215 million, 8.3 percent higher than the revised May estimate of 1.122 million and 2.1 percent higher than a year ago (1.190 million). Single-family housing starts in June rose to 849,000; 6.3 percent higher than May (799,000). The June rate for units in buildings with five units or more rose to 359,000, 6.3 percent higher than May (311,000).
Regionally, only the South (the largest region) saw a decline in housing starts, falling by 3.8 percent to 533,000 units, seasonally adjusted, in June from 554,000 units in May. Starts fell by 9.2 percent from a year ago.
In the West, housing starts edged up by 1.6 percent to 319,000 units from 314,000 in May and improved by 6.0 percent from a year ago. In the Northeast, starts jumped by 83.7 percent to 158,000 units in June from just 86,000 units in May (its highest level since October 2016) and improved by 38.6 percent from a year ago. In the Midwest starts rose by 22.0 percent in June to 205,000 units from 168,000 in May and improved by 9.0 percent from a year ago.
“Today’s Census Bureau report for June takes a small step toward alleviating the supply shortage in the housing market,” said Mark Fleming, chief economist with First American Financial Corp., Santa Ana, Calif. “The pace of single-family housing starts, 849,000, is particularly important as it represents near-term new supply that the housing market is lacking.”
Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said the rebound in housing starts was widely expected. “Activity in prior months had been held back by unusual seasonal factors that have now largely played out,” he said.
The report said privately owned housing units authorized by building permits in June rose by 7.4 percent in June to a seasonally adjusted annual rate of 1.254 million from May’s revised 1.168 million and improved by 5.1 percent from a year ago (1.193 million. Single-family authorizations in June rose by 4.1 percent to 811,000; this is 4.1 percent (±0.8 percent) above the revised May figure of 779,000. Multifamily permits totaled 409,000 in June, up by nearly 15 percent from May (357,000) but down by 2.4 percent from a year ago.
The report said privately owned housing completions in June rose by 5.2 percent to 1.152 million from May’s revised 1.144 million and improved by 8.1 percent from a year ago (1.113 million). Single-family housing completions in June edged up by 0.4 percent in June to 798,000 from May (795,000). Multifamily completions totaled 396,000 in June, up by nearly 18 percent from May (336,000) and up by 15.1 percent from a year ago.
Fleming said declines in residential construction jobs in July could hamper further improvements this summer. “Building a home does not readily lend itself to outsourcing and automation,” he said. “Home building still requires manual labor as a key input into the production process. It’s very hard to increase housing starts without increasing residential construction employment. This month’s decline and, more importantly, a lack of growth in residential construction jobs is a significant impediment to increasing the pace of housing starts.”
Fleming also noted total housing starts are now 100,000 units below the recent peak of nearly 1.3 million units in February. “Without more increases in housing starts, the inventory of homes for sale is likely to decrease further,” he said. “The amount of completions necessary just to keep pace with growing Millennial demand is probably around 1.5 million units. Housing completions at 1.2 million this month falls short of what is needed. Short supply relative to increasing demand is driving nominal prices higher, yet home purchasing-power is also twice as high as it was in 2000.”
