Both housing starts and permits disappointed in May. Starts totaled 1.092mm annualized, well below the estimate of 1.22mm and April was revised down by 16k to 1.156mm. This is the slowest pace since September. Both components contributed to the miss. Single family starts fell by 32k m/o/m to 794k, the lowest since September. Multi family starts totaled 298k, down 32k m/o/m and that is the slowest pace of starts also since September. The miss on the permit side was 81k while April was basically left unrevised. Single family permits fell by 15k and multi family permits were lower by 45k.
Bottom line, we can’t blame weather and we can’t blame fixed mortgage rates for the data miss (maybe people searching for ARM’s are discouraged? Don’t know). In an industry that needs more inventory on the single family side, particularly for lower priced homes, we saw an 8 month low in starts and permits. As seen in the chart, the recovery has been very stair step so maybe this is just a temporary pause before the next steps up. We’ll see but the industry is still under building as defined as running at a pace well below historical trends. At 794k, single family starts are still 20% below the 25 year average. It also compares with the bubble peak of 1.82mm in January 2006. In this week’s NAHB builder report, again the shortage of labor and lots were to blame as two key factors impacting the business so we can chalk up those two factors also for the current level of activity. Also, the millennial desire to own is there but the finances unfortunately are not for many who can’t afford a down payment. For multi family, the starts data is much more volatile m/o/m and the supply recently has been much more robust. A pause then wouldn’t be too much of a surprise. Rent growth should soften from here because of large backlog supply but I think the demand side for renting will be healthy for a while. As for the economy as a whole, this type of data point just adds again to the mediocre growth rate we are still stuck in.
SINGLE FAMILY STARTS