Driven by pent-up demand due to a lack of inventory, builders took advantage of the nice weather in May to increase production month-over-month and year-over-year. This despite the fact that builders have been battling rising materials costs, a lack of buildable lots and a lack of skilled labor in most parts of the U.S. Permits, however, were down.
Housing starts in May were at a seasonally adjusted annual rate of 1.35 million, an increase of 5.0% from a revised rate of rate of 1.28 million in April and an increase of 20.3% from 1.12 million in May 2017, according to estimates from the U.S. Census Bureau and U.S. Department of Housing and Urban Development.
Starts of single-family homes were at a rate of 936,000, up 3.9% compared with 901,000 in April. Starts of multifamily homes (five units or more per building) were at a rate of 404,000, up 11.3% from 363,000 in April.
Regionally, housing starts increased 62.2% in the Midwest but fell 15% in the Northeast, 4.1% in the West and 0.9% in the South.
Building permits were at a seasonally adjusted annual rate of about 1.30 million, down 4.6% from a revised estimate of 1.36 million in April, but up 8.0% compared with 844,000 in May 2017.
Permits for single-family homes were at a rate of about 844,000, down 2.2% from about 863,000 in April. Permits for multifamily homes were at a rate of about 421,000, down 8.5% compared with about 460,000 in April.
Regionally, permits increased 42.1% in the Northeast and 7.2% in the Midwest but fell 4.6% in the West and 13.9% in the South.
Housing completions were at a rate of 1.29 million, up 1.9% compared with 1.27 million in April and up 10.4% compared with 1.17 million in May 2017.
Single-family housing completions were at a rate of 890,000; up 11.0% compared with 802,000 in April. Multifamily units were at a rate of 389,000, down 14.1% compared with 453,000 in April.
Mark Fleming, chief economist for First American, says the 8.0% increase in building permits and 20.3% increase in housing starts compared to the previous year send an optimistic sign for the housing market.
Although demand has outstripped supply since 2007, the gap seems to be narrowing, Fleming says in a statement. Nearly a million households were created between April 2017 and April 2018, adding to the demand for housing, he says. However, the 873,000 new housing units completed are helping balance the demand.
Fleming says the current shortage of just over 150,000 units marks a three-year low in the gap between housing supply and demand.
“May 2018 saw a 10.4 percent increase in completions compared to the previous year,” Fleming says. “As builders start to work on additional housing, we will inch closer to balancing inventory with demand. But with millennials entering household formation age and baby boomers living longer and more independently, builders will remain under pressure to meet the growing demand.”
Robert Dietz, chief economist for the National Association of Home Builders (NAHB), says “ongoing job creation, positive demographics and tight existing home inventory should spur more single-family production in the months ahead.”
“However, the softening of single-family permits is consistent with our reports showing that builders are concerned over mounting construction costs, including the highly elevated prices of softwood lumber,” Dietz adds in a statement.
Randy Noel, chairman for NAHB, says “we should see builders continue to increase production to meet growing consumer demand even as they grapple with stubborn supply-side constraints, particularly rising lumber costs.”
