The Census Bureau and the U.S. Department of Housing and Urban Development said that new housing starts were somewhat lower in May than expected. New housing starts declined from an upward-revised 1,165,000 units at the annual rate in April to 1,036,000 in May, which was below the consensus estimate of around 1.1 million. Both single-family (down from 719,000 to 680,000) and multi-family (down from 446,000 to 356,000) activity were both worse for the month.
On the positive side, starts continue to show improvement from the 900,000 pace seen just three months ago – a sign that the market has largely recovered from its weather-related softness earlier in the year. Indeed, part of the decline in May could simply be a function of the robustness in April’s reading (the highest since October 2007), with the data getting somewhat ahead of the underlying trend line. A pullback of some sort was probably inevitable. My current forecast is for 1.16 million housing starts by the end of this year.
The housing permits data give some credence to this outlook. New housing permits soared from an annualized 1,140,000 units in April to 1,275,000 in May, the fastest rate since August 2007. With permits being a good proxy for future activity, this news was encouraging. This increase was spurred by a significant jump in multi-family (up from 474,000 to 592,000) permitting, which rose to a 28-year peak, up from just 392,000 in December. This segment can often be quite volatile, but the upward movement was positive news. Single-family (up from 474,000 to 592,000) permitting was also higher.
Overall, despite the decline in starts, this report provided some reassurance that the housing market has stabilized, with increased activity moving forward. This mirrored the findings from yesterday’s Housing Market Index from the National Association of Home Builders (NAHB) and Wells Fargo, which rose to its highest level since September. The HMI increased from 54 in May to 59 in June. This was the 12th straight month with the HMI exceeding 50, suggesting that home builders were more positive than negative in their outlook over that time frame. This current report suggests that sentiment among builders has begun to rebound from some softer data points earlier in the year, and NAHB’s Chief Economist David Crowe suggests that there is “growing optimism among builders.”
The NAHB index improved in each region of the country. More importantly, these data suggest that home builders are upbeat about sales over the next six months, with the index for single-family sales over the next six months rising from 63 to 69, its highest level since October 2005.
Chad Moutray is the chief economist, National Association of Manufacturers.
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