Surge in Midwest Boost May Housing Starts

A strong burst of home building in the Midwest drove housing starts to their highest levels in more than a year, HUD and the Census Bureau reported yesterday.

The report said privately owned housing starts in May rose to a seasonally adjusted annual rate of 1.35 million, 5.0 percent higher than the revised April estimate of 1.286 million and 20.3 percent higher than a year ago. Single-family housing starts in May rose by nearly 4 percent to 936,000; the May rate for units in buildings with five units or more rose to 404,000, up by 11.3 percent from April (363,000) and up by 27.4 percent from a year ago.

Regionally, strong growth in the Midwest negated declines elsewhere. Starts jumped by 62 percent in May, to 266,000 units, from 164,000 in April and improved by 62 percent from a year ago.

In the South, starts fell by 0.9 percent to 653,000 units, seasonally annually adjusted, from 659,000 units in April but improved by nearly 17 percent from a year ago. In the West, starts declined by 4.1 percent to 329,000 units in May from 343,000 units in April but improved by nearly 5 percent from a year ago. In the Northeast, starts fell by 15 percent to 102,000 units in May from 120,000 in April but improved by 27.4 percent from a year ago.

“Given that so much of May’s increase was in the Midwest, there may be a temptation to downplay the improvement in the headline number,” said Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C. “We suspect spring showed up a little later than usual in the Midwest this year, which allowed builders to ramp up construction a little more than they usually do in May.”

Vitner added, however, that economic growth in the Midwest “has improved dramatically during the past year, with manufacturing bouncing back and unemployment falling to new lows. The improvement in the non-seasonally adjusted data is real and likely to ramp up even further in coming months.”

While weather boosted activity in the Midwest, it may have dampened starts in the South, which saw a fair amount of rain in May. “The South typically accounts for a little over half of housing starts and an even larger proportion of single-family starts,” Vitner said. “Demand for homes in Texas, Florida, Georgia and the Carolinas remains exceptionally strong but is bumping up against supply constraints, as builders scramble to secure lots and workers. Rising prices for lumber and other building materials are also causing many smaller homebuilders to delay projects until later this year, when lumber prices should ease somewhat.”

The report said privately owned housing units authorized by building permits in May fell to a seasonally adjusted annual rate of 1.301 million, 4.6 percent below the revised April rate of 1.364 million but 8.0 higher than a year ago. Single-family authorizations in May fell by 2.2 percent to 844,000 from April’s revised 863,000. Authorizations of units in buildings with five units or more fell by 8.5 percent to 421,000 in May from April but improved by 9.1 percent from a year ago.

Privately owned housing completions in May rose by nearly 2 percent to a seasonally adjusted annual rate of 1.291 million from April’s revised 1.267 million and improved by 10.4 percent from a year ago. Single-family housing completions in May rose by 11 percent to 890,000 from April’s revised 802,000; the May rate for units in buildings with five units or more fell to 389,000, down by 14.1 percent from April and down by nearly 27 percent from a year ago.