After two months of disappointing, declining housing starts and permits - understandable with mortgage rates around 7% - the May data was a shocker: after a modest revision to the April data, in May both housing starts and permits exploded higher in a move that has stumped economist and strategists. Beginning home construction soared 21.7%...
... to a 1.63 million annualized rate.
The 291K increase in housing starts was the biggest monthly increase in actual units on record, and was the biggest percentage increase since October 2016, reflecting gains in three of four US regions.
Drilling down into single-family and multifamily (or rental) projects, May saw a 156K, or 18.5%, increase in single-family units to 997K, the highest since June 2022.
Multi-family starts surged even more, rising 28.1% to 624K from 487K,,
Permits were a more subdued affair: applications to build, a proxy for future construction, climbed 5.2% to an annualized rate of 1.49 million units. Permits for one-family dwellings increased 4.8% to 897K, the highest since last July, while multi-fam permits jumped 7.8% to 542K, after hitting a two-year low last month.
The perplexing numbers, notorious for their unreliability and subsequent revisions, corroborate Powell’s comments last week that the housing market has shown signs of stabilizing. Homebuilders, which are responding to limited inventory in the resale market, have grown more upbeat as demand firms, materials costs retreat and supply-chain pressures ease.
At the same time, elevated mortgage rates are crimping affordability, suggesting limited momentum in housing demand, and forcing more people to be stuck renting, which explains the record multifamility starts
The number of homes completed increased to a 1.52 million annualized rate. The level of one-family properties under construction were little changed at 695,000.
The housing starts data will feed into economists estimates of home construction’s impact on second-quarter gross domestic product. Prior to the report, the Atlanta Fed’s GDPNow forecast had residential investment subtracting about 0.1 percentage point from gross domestic product. That would be the least since 2021; however, now expect to see a huge jump in Q2 GDP estimates, just what the Biden admin wanted.
