Construction Activity Drops in May; Multi-Family Gains Stem Deeper Decline

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • Home building activity, measured by housing permits and starts SLIPPED in May, as starts dropped and permits were essentially flat;
  • The seasonally adjusted annual rate of permits EDGED UP 0.3 percent to a seasonally adjusted annual rate (SAAR) of 1.294 million;  
  • The SAAR of starts FELL 0.9 percent with the decline concentrated in single-family starts which dropped 6.4 percent; multi-family starts ROSE 10.9 percent;
  • Data for March and April were revised to show a drop in the originally reported number of permits but an increase in starts; most of the increase in starts came in multi-family.
  • The rate of total housing completions FELL 9.5 percent. The SAAR of single-family completions DROPPED 5.0 percent and the pace of multi-family completions FELL almost 20 percent.

Trends:

  • Single-family permit activity rose for the first time since last November. The five straight months of decline of single-family permits was the longest streak of declines since April-September 2010;
  • Year-year, the rate of single-family permits has been down for eight straight months;
  • Single-family starts are down year-year for four straight months and seven of the last eight months;
  • Single-family starts represented 64.6 percent of total starts, the lowest share since December 2016 (63.7 percent);
  • The rate of multi-family starts improved for the fourth straight months, the longest stretch since July-October 2004.

Data Source: Census Bureau and Department of Housing and Urban Development

Image result for home building

Housing sector weakness continued in May as construction activity, measured by housing starts, declined ad permits increased but barely.

The Census and Housing and Urban Development data came just one day after the National Association of Home Builders (NAHB) reported its Housing Market Index dipped slightly though it remained in positive territory at 64 (out of 100). Builders in the survey cited weakness in the current market for new home sales along with sales six month out and that buyer traffic into model homes had declined.

The most recent Census-HUD report on new home sales, for April, showed a 6.9 percent decline in the SAAR of sales. Census-HUD will report ion new home sales for May next Tuesday.

The decline in building activity reflected less interest in home buying, despite lower mortgage rates, and greater rental activity. Governments have taken notice. Last week the New York State Legislatures passed, and Governor Andrew Cuomo signed legislation increasing protections for tenants even as developers warned the new law would mean a cutback in construction of affordable housing units in New York.

The shift in attitudes of the “American dream” of homeownership has its roots in the Great Recession and mortgage crisis of 10 years ago during which current would-be homeowners watched their parents or friends’ parents were subject to increasing levels of foreclosure. At the same time, those potential home-buyers themselves were affected by higher levels of student debt affecting credit ratings.

Regionally, the report on permits and starts mirrored the HMI which showed builder confidence falling in the Northeast and West coast. Housing starts dropped in those two regions, according to the Census-HUD report with sharp declines in single-family home starts.

Hear Mark Lieberman every Friday at 6:20 am on POTUS Morning Briefing, Sirius-XM 124. You can follow him on Twitter at @foxeconomics.

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