The Census Bureau and the U.S. Department of Housing and Urban Development said that new housing starts weakened again in May, dropping for the third straight month. New residential construction fell from an annualized 1,156,000 in April to 1,092,000 in May, its lowest level since September. Since reaching 1,288,000 units in February, housing starts have pulled back considerably. This report was disappointing, especially since it was expected to rise to exceed 1.2 million again. Perhaps we will see a rebound in the summer months. For their part, the home builder optimism remains strong, with respondents to that survey predicting healthy gains in activity over the next six months. I am also predicting a bounce back in my forecast, which is for 1.25 million starts by year’s end.
Looking at the May data, single-family (down from 826,000 to 794,000) and multifamily (down from 330,000 to 298,000) starts each slipped in the month, each of which was an eight-month low. Starts were sharply lower in the Midwest and the South, unchanged in the Northeast, and marginally higher in the West. On a year-over-year basis, housing starts were off 2.4 percent from May 2016’s pace of 1,119,000. Yet, that mainly reflects a huge drop in multifamily activity, down 23.0 percent. Note that multifamily starts can often be quite volatile from month-to-month. In contrast, single-family starts have risen 8.5 percent, suggesting a better longer-term trend than the headline figures might seem to indicate.
Meanwhile, housing permits were also lower, down from 1,228,000 to 1,168,000 in this release. This ended nine consecutive months with permits exceeding 1.2 million units, and May’s pace was a 13-month low. Much like the starts data described above, these results are disappointing, particularly since permits are proxy of future activity. Single-family (down from 794,000 to 779,000) and multifamily (down from 434,000 to 389,000) permitting were both off for the month. Overall, new residential construction permits were down 0.9 percent since May 2016, off from 1,178,000 units last year. Nonetheless, single-family permits were up 6.0 percent year-over-year, with multifamily activity down 12.2 percent.