May Housing Starts Sluggish
Housing starts fell in May, despite a strong showing in the South, HUD and the Census Bureau reported yesterday.
The report said privately owned housing starts in May fell by 0.9 percent to a seasonally adjusted annual rate of 1.269 million from April’s upwardly revised 1.281 million. From a year ago, starts fell by 4.7 percent.
The report said single‐family housing starts in May fell to 820,000, down by 6.4 percent from April’s revised 876,000. The May rate for units in buildings with five units or more rose to 436,000, up by 13.8 percent from April and a year ago.
Regionally, starts fell across the board except in the South, where starts rose by 11.2 percent in May to 704,000 units, seasonally annually adjusted, from 633,000 in April and improved by 8.1 percent from a year ago.
In the West, starts fell to 332,000 units in May, seasonally annually adjusted, from 340,000 units in April and fell by 0.6 percent from a year ago. In the Midwest, starts fell by 8 percent to 160,000 units in May from 174,000 units in April and fell by 33.1 percent from a year ago. In the Northeast, starts fell by 45.5 percent in May to 73,000 units from 134,000 units in April and fell by 32.4 percent from a year ago.
“Total housing starts changed little in May, but single-family starts dropped,” said MBA Chief Economist Mike Fratantoni. “The decrease in single-family construction was led by a decline in the Midwest, which was likely impacted by numerous flooding events in that region. Multifamily starts jumped almost 14 percent nationally, as rental demand remains strong.
Fratantoni said the current trend in permits suggests that the same pace of construction is likely to continue, without either acceleration or declines. “Builders remain constrained by a lack of skilled labor, shown by the still-record level of job openings in the construction sector,” he said.
Odeta Kushi, Deputy Chief Economist with First American Financial Corp., said the report sends mixed signals to the market and buyers–fewer new homes coming to the market in the short term, but some hope of more housing supply in the not too distant future.
“The decline will be discouraging for home buyers as it signals less supply for a housing market in need of a supply surge,” Kushi said. “The construction industry continues to face several supply-side headwinds: increasing material costs, a chronic lack of construction workers, a dearth of buildable lots, and restrictive regulatory requirements in many markets.”
Kushi noted in 2018, the U.S. gained 1.2 million new households, while net new supply of houses, condos, and apartments were below 900,000 units. “New household formation is expected to grow as millennials are still forming households, and baby boomers are living longer and more independently than ever,” she said. “For more than a decade, home building has not been keeping up with the demand for shelter.”
Mark Vitner, Senior Economist with Wells Fargo Securities, Charlotte, N.C., said despite the drop, there were a “few rays of sunshine” within the report, as prior months’ data were revised higher, and single-family permits rose for the first time in six months.
“New residential construction continues to have trouble building momentum despite lower building costs and improved buying conditions,” Vitner said. “Builders were likely slightly discouraged by the prospects of an escalating trade war, which threatens to drive up prices on an assortment of new building materials, home décor items and furniture produced in China, such as floor tiles, kitchen cabinets and light fixtures.”
The report said privately owned housing units authorized by building permits in May came in at 1.294 million, 0.3 percent higher than the revised April rate of 1.29 million but 0.5 percent below a year ago. Single‐family authorizations in May came in at 815,000, 3.7 percent above the revised April figure of 786,000. Authorizations of units in buildings with five units or more fell to 442,000 in May, down by 3.7 percent from April (459,000) but up by 8.8 percent from a year ago.
HUD/Census said privately owned housing completions in May fell to a seasonally adjusted annual rate of 1.213 million, 9.5 percent below the revised April estimate of 1.34 million and 2.8 percent lower than a year ago. Single‐family housing completions in May were at a rate of 890,000; this is 5.0 percent (±12.7 percent)* below the revised April rate of 937,000. The May rate for units in buildings with five units or more fell to 319,000, down by 18.2 percent from April and down by 11.4 percent from a year ago.
