Residential housing starts increased in May, building permits declined

Washington, D.C. — The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced new residential construction statistics for May 2018. Privately owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,301,000. This is 4.6 percent (±1.4 percent) below the revised April rate of 1,364,000, but is 8.0 percent (±1.3 percent) above the May 2017 rate of 1,205,000.

Single-family authorizations in May were at a rate of 844,000; this is 2.2 percent (±1.0 percent) below the revised April figure of 863,000. Authorizations of units in buildings with five units or more were at a rate of 421,000 in May.

Privately owned housing starts in May were at a seasonally adjusted annual rate of 1,350,000. This is 5.0 percent (±10.2 percent) above the revised April estimate of 1,286,000 and is 20.3 percent (±14.4 percent) above the May 2017 rate of 1,122,000. Single-family housing starts in May were at a rate of 936,000; this is 3.9 percent (±10.6 percent) above the revised April figure of 901,000. The May rate for units in buildings with five units or more was 404,000.

Privately owned housing completions in May were at a seasonally adjusted annual rate of 1,291,000. This is 1.9 percent (±13.7 percent) above the revised April estimate of 1,267,000 and is 10.4 percent (±12.1 percent) above the May 2017 rate of 1,169,000. Single-family housing completions in May were at a rate of 890,000; this is 11.0 percent (±12.7 percent) above the revised April rate of 802,000. The May rate for units in buildings with five units or more was 389,000.

“Housing starts for May came in at 1,350,000, the highest level since July of 2007,” said Scott Volling, principal, PwC. “This is 3.1 percent above the consensus number of 1,310,000, 5 percent higher than last month’s revised 1,286,000, and over 20 percent higher than May of last year, which was somewhat of an anomaly at 1,122,000. Importantly, the single-family number was 936,000, the second highest reading since August 2007, and the third time in the last four months that single-family starts were at least 900,000 after achieving that level only once in the prior 10+years.

“Permits were a bit disappointing at 1,301,000, 3.6 percent below the consensus number of 1,350,000 and 4.6 percent below the revised April number of 1,364,000,” Volling said. “However, this marks the eighth straight month that permits achieved the psychological level of 1,300,000.  The volatile multi-family number rose 11.3 percent from April to 404,000 units, 27.4 percent higher than May of 2017.

“The strong results this month reflect a tale of two dynamics present in the market,” Volling said. “On the one hand, builders continue to face strong headwinds in the form of rising material costs (as reflected in the drop in yesterday’s home builder sentiment index), land pricing and availability, a rising rate environment, and increasing affordability challenges for consumers.  Perhaps most importantly for builders, the constrained construction labor pool limits the velocity with which builders can produce new homes.

“On the other hand, the supply of new and existing homes for sale continue to be approximately a third to half of what is typically considered a ‘healthy’ market, while at the same time millennials are increasingly entering what is historically considered their prime home buying years.  Based on this month’s results and the general economic health of the builders, it appears the forces of demand continue to outweigh the headwinds on supply.”