May housing starts exceed expectations

18 June, 2019

Scott Volling
Partner in Advisory, PwC US

May housing starts were released today, coming in 2.4% above the consensus of 1,239,000 but 4.7% below May of 2018, which was a very strong 1,332,000. Positively, April results were revised upward by 46,000 units to 1,281,000. Permits, an indicator of potential start levels in the future, came in at 1,294,000, essentially flat with April’s revised 1,290,000 and 0.5% below May of 2018.

While the headline starts figure exceeded expectations, the strength was largely driven by the volatile multi-family segment, with multi-family starts increasing 13.8% both month over month and year over year to the highest levels since January of 2018. All things being equal, a stronger single family number is viewed as a more positive reflection of the housing market as a whole. Because of this, the 6.4% drop in single family starts from last month’s 876,000 to this month’s 820,000, and the year over year decrease of 12.5%, is disappointing. With mortgage rates at a 2 year low, refinancing activity has increased, but the rates have not necessarily translated to an acceleration of new home buying. This is reflected in yesterday’s dip in the home builder sentiment index from 66 to 64, as builders voiced concerns about tariffs, the cost of materials and the scarcity of labor. With monthly permits staying in a relatively narrow range over the past 12 months or so, I would expect this to translate to a starts number that also continues at similar levels.