Supply Shortages Hamstring Housing Starts Report
Housing starts stumbled again in May, hamstrung by supply shortages even as demand for new housing remained persistently high, HUD and the Census Bureau reported Friday.
The report said privately owned housing starts in May fell to a seasonally adjusted annual rate of 1.092 million, down by 5.5 percent from the revised April estimate (1.156 million) and down by 2.4 percent from a year ago (1.119 million). Single-family housing starts in May fell by nearly 4 percent to 794,000 from April’s revised 826,000; the May rate for units in buildings with five units or more fell to 284,000, down by nearly 10 percent from April and by 25.7 percent from a year ago.
Regionally, starts fell in the South by nearly 9 percent to 526,000 units, seasonally adjusted, in May from 577,000 in April and fell by nearly 10 percent from a year ago. In the West, starts increased by 1.3 percent to 311,000 units in May from 307,000 in April and jumped by 17.4 percent from a year ago. In the Midwest, starts fell by 9.2 percent to 168,000 units in May from 185,000 in April and fell by 11.6 percent from a year ago. In the Northeast, starts were unchanged from April at 87,000 units and rose by nearly 9 percent from a year ago.
The report “signals further supply shortages in the housing market,” said Mark Fleming, chief economist with First American Financial Corp., Santa Ana, Calif. “The pace of single-family housing starts, 794,000, is particularly important as it represents near-term new supply that the housing market is lacking.”
Fleming said lack of inventory of homes for sale is “one of the most pressing challenges in the housing market today,” as new homes are the source of supply that increases the total stock of housing to meet our nation’s growing demand.
Fleming noted since 2009, new housing supply has been falling short of new housing demand. The shortfall was the largest in 2011 (465,000 housing units) and cumulatively through 2015 the total shortfall has been 2.2 million housing units. He estimated the amount of housing supply necessary to just keep pace with demand is probably around 1.5 million housing units a year. Housing completions at 1.1 million in May falls short of what is needed.
“The market for existing homes continues to tighten as Millennial household formation grows,” Fleming said. “Yet, existing homeowners are prisoners in their own homes as rates rise and make moving more costly and the fear of not being able to find something hinders the decision to sell. More new, and affordable, homes are needed, otherwise expect continued low inventories of homes for sale and fast rising prices.”
Building permits slid, too. The report said privately owned housing units authorized by building permits in May fell by nearly 5 percent to a seasonally adjusted annual rate of 1.168 million from April’s revised 1.228 million and by 0.8 percent from a year ago (1.178 million). Single-family authorizations in May fell by nearly 2 percent to 779,000 from April’s revised 794,000; authorizations of units in buildings with five units or more were at a rate of 358,000 in May, down by 10 percent from April and by 13.1 percent from a year ago.
Privately owned housing completions in May rose, however, by 5.6 percent to 1.164 million from April’s revised 1.102 million and by nearly 15 percent from a year ago (1.016 million). Single-family housing completions in May rose by nearly 5 percent to 817,000 from April’s revised 779,000; the May rate for units in buildings with five units or more rose to 335,000, up by 12 percent from April and by 18.4 percent from a year ago.
Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said declines in both starts and permits suggest “more at play than some temporary statistical issue.”
“May’s 3.9 percent drop in single-family starts and 1.9 percent drop in single-family permits is perplexing, particularly given that builders are selling homes as fast as they can deliver them,” Vitner said. “Worker shortages may be a growing issue, with the number of single-family homes authorized but not started rising 4.0 percent in May and surging 14.7 percent over the past year. Apartment construction is clearly declining, however.”
