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Strong results for May housing starts, highest level since 2007

19 June, 2018

Scott Volling
Partner, PwC US

Housing starts for May came in at 1,350,000, the highest level since July of 2007. This is 3.1% above the consensus number of 1,310,000, 5% higher than last month’s revised 1,286,000, and over 20% higher than May of last year, which was somewhat of an anomaly at 1,122,000. Importantly, the single family number was 936,000, the second highest reading since August 2007, and the third time in the last four months that single family starts were at least 900,000 after achieving that level only once in the prior 10+years. Permits were a bit disappointing at 1,301,000, 3.6% below the consensus number of 1,350,000 and 4.6% below the revised April number of 1,364,000; however, this marks the eighth straight month that permits achieved the psychological level of 1,300,000. The volatile multi-family number rose 11.3% from April to 404,000 units, 27.4% higher than May of 2017.

The strong results this month reflect a tale of two dynamics present in the market. On the one hand, builders continue to face strong headwinds in the form of rising material costs (as reflected in the drop in yesterday’s home builder sentiment index), land pricing and availability, a rising rate environment and increasing affordability challenges for consumers. Perhaps most importantly for builders, the constrained construction labor pool limits the velocity with which builders can produce new homes. On the other hand, the supply of new and existing homes for sale continue to be approximately a third to half of what is typically considered a “healthy” market, while at the same time millennials are increasingly entering what is historically considered their prime home buying years. Based on this month’s results and the general economic health of the builders it appears the forces of demand continue to outweigh the headwinds on supply.