Housing Construction Starts Hit 11-year High in May

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • The rate of housing permit filings in May FELL 4.6 percent to a seasonally adjusted annual rate (SAAR) of 1.30 million units;
  • The rate of permits for single-family home permits filed in May DROPPED, 2.2 percent to an SAAR of 844,000 units;
  • The rate of permit filings for multi-family homes FELL 8.8 percent in May to 457,000 units (SAAR);
  • The rate of all housing starts ROSE 5.0 percent in May to an SAAR of 1.35 million with virtually all the increase attributable to stronger single-family starts which ROSE 3.9 percent in May;
  • The rate of home completions in May INCREASED 1.9 percent from April driven by an11.0 percent jump in single-family home completions.

Trends:

  • The pace of housing starts ROSE in May to the highest level since July 2007 (1.354 million);
  • Housing permits FELL month-month for the third time (in five months) this year with the largest percentage month-month drop since February 2017;
  • Permits for single-family homes dropped to the lowest level since last September (831,000 units);
  • The 11.0 percent month-month jump in single-family home completions will likely exacerbate the inventory glut which rose in April to 300,000, the highest level since April 2009.

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

Image result for home construction

Builders rushed material orders to get construction started on new housing in May, before the impact of higher tariffs on lumber and other components kick in.

According to Real Clear Politics the Random Lengths Framing Lumber Index which tracks lumber prices hit its highest level ever — $512 per thousand board feet – in May, a 25 percent price increase from one year ago. The RCP report said the increase in lumber prices would add about $6,400 to the cost of a new home.

The median price of a new single-family home in April, the Commerce Department reported, was $312,400.

On top of the higher lumber prices, the Trump Administration’s imposition of higher tariffs on steel could flow through to multi-family construction either increasing the cost of construction or sharply cutting home building.

Lumber is used for shingles as well as framing in home building.

The National Association of Home Builders reported Monday its Housing Market Index, measuring builder confidence, dropped two points in June (the survey is conducted in the first 10 days of the month) to 68 as the measure of buyer traffic fell to its lowest level since last November. The outlooks for current new home sales and for new home sales six months out also dropped. The index measure of 68 though means the outlook for home sales and building remains positive (index value over 50) as it has been since July 2014.

Would-be home buyers are facing the double-whammy of higher prices and higher mortgage rates.  The median rate for a 30-year fixed rate mortgage, according to Freddie Mac, was 4.62 percent last week, an increase of almost 20 percent from 3.91 percent a year ago.

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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