Housing Starts Post Healthy June Gain
July has been a good month for the housing industry thus far; HUD and the Census Bureau kept the momentum going Friday with a positive report on housing starts.
HUD/Census said privately owned housing starts in June jumped by 17.3 percent from May to a seasonally adjusted annual rate of 1.186 million from May’s revised 1.011 million. From a year ago, however, starts fell by 4 percent.
The report said single-family housing starts in June rose to 831,000; 17.2 percent higher than the revised May figure (709,000). The June rate for units in buildings with five units or more rose to 350,000, up by 18.6 percent from May but down by 2.5 percent from a year ago.
Every region saw gains except for the West, which saw housing starts fall by 7.5 percent in June to 294,000 units, seasonally annually adjusted, from 318,000 units in May; from a year ago, starts in the West fell by 4.2 percent.
In the largest region, the South, housing starts rose by 20.2 percent in June to 606,000 units, seasonally annually adjusted, from 504,000 units in May; from a year ago, starts in the South fell by 4.6 percent. In the Midwest, starts jumped by 29.3 percent to 181,000 units in June from 140,000 units in May but fell by 0.5 percent from a year ago. In the Northeast, starts more than doubled in June (114.3 percent) to 105,000 units from 49,000 units in May but fell by 5.4 percent from a year ago.
“Homebuilding continues to rebound from the sharp drop experienced in April due to the onset of the pandemic,” said Mike Fratantoni, Chief Economist with the Mortgage Bankers Association. “Single-family housing starts in June were up strongly, but are still behind last year’s pace at this time. The growth in construction permits suggests building momentum in the months ahead.”
Fratantoni noted the June MBA Builder Applications Survey showed demand is running 54 percent ahead of a year ago; and the National Association of Home Builders’latest Housing Market Index showed rising builder confidence in future demand. “This is positive, as the rebound in housing demand could be stymied if there is not more inventory on the market soon,” he said. “Home prices have held up well thus far given the lack of supply, and we’re forecasting for home-price growth of 4 percent this year.”
Mark Vitner, Senior Economist with Wells Fargo Securities, Charlotte, N.C., said the report shows single-family home building continues to ramp up. “While both single and multifamily starts rose solidly in June, we believe that apartment construction is set to slow,” he said. “Single-family homebuilding has several potent long-term tailwinds behind it. COVID-19 lockdowns have likely encouraged many apartment dwellers already contemplating buying a home to accelerate their timeframe for doing so. More broadly, COVID-19’s severe impact on major metro areas has led some to suggest an oncoming stagnation in urban centers. While these worries may be a bit premature, demographics alone suggest we may continue to see a shift to the suburbs. The movement of folks from higher cost parts of the country to the South, where single-family homes are more affordable and more prevalent, will also boost construction.”
Odeta Kushi, Deputy Chief Economist with First American Financial Corp., Santa Ana, Calif., said home builder optimism has recovered amidst robust demand.
“Pent-up demand from a deferred spring home-buying season and historically low mortgages rates have resulted in a strong V-shaped recovery for the housing market, and builders are taking note,” Kushi said. “While still lower than one year ago, June’s month-over-month rebound in housing permits and starts indicates builders are responding to the need for more homes.”
Kushi noted, however, record-low mortgage rates are a “blessing and a curse. While low mortgage rates help to reduce the monthly cost of a mortgage and increase your home-buying power, all the existing owners who have refinanced into lower mortgages are less incentivized to move,” she said. “Housing is not like most goods. It has to be ‘better’ than the one the potential buyer currently owns, and when the supply dwindles, it becomes harder to find a better house and easier to just refinance and do a renovation instead. This fear of not being able to find something better, the fact that selling and moving is costly, combined with the fact that one can refinance into an amazingly low rate. Why move?”
Doug Duncan, Chief Economist with Fannie Mae, Washington, D.C., said new single-family sales have outpaced new single-family starts in recent months and the ratio between the two remained at the highest level since 2009 in May. “We expect to see continued strength in single-family starts and a leveling off of single-family sales in the third quarter, bringing that ratio more in line with historical norms,” he said. “A downside risk to our housing starts forecast is building material prices, such as lumber, which have spiked in recent weeks. In early July, the price of lumber reached levels not seen since the surge of 2018.”
The report said privately owned housing units authorized by building permits in June jumped to a seasonally adjusted annual rate of 1.241 million, 2.1 percent higher than the revised May rate of 1.216 million, but 2.5 percent lower than a year ago. Single-family authorizations in June rose by 11.8 percent to 834,000; authorizations of units in buildings with five units or more fell to 368,000 in June, down by 14 percent in May and down by 4.2 percent from a year ago.
HUD/Census said privately owned housing completions in June rose to a seasonally adjusted annual rate of 1.225 million, 4.3 percent higher than the revised May estimate of 1.174 million and 5.1 percent higher than a year ago. Single-family housing completions in June rose by 9.6 to 910,000; the June rate for units in buildings with five units or more fell to 311,000, down by 5.5 percent from June but up by 11.1 percent from a year ago.
