May Single-Family Starts Jump to 6-Month High

Single-family housing starts increased 7.5 percent to 401,000 in May, according to the U.S. Census Bureau's new residential construction data for May. It's the highest monthly total since last November. Also in May, there was a similar 8 percent rise in permits to 408,000. The increase was 12 percent from last month's initial lower estimate by the U.S. Census Bureau of starts.
Residential development remains depressed but is clearly improving from the cyclical low during the winter. However, the parallel 62 percent surge in May multifamily starts has a different interpretation. It is a bounce back from a similar plunge a month earlier. Multifamily starts remain at the lowest level in many decades in a market that is not yet ready to improve.
Home builders also reduced May single-family completions to 491,000 and units under construction to 318,000. Completions are still above current demand and adding slightly to the surplus of homes for sale. But the number of homes under construction matches the current pace of sales for the first time in more than three years. This suggests that home builder layoffs will quickly ebb back to near zero and that the long decline of monthly single-family construction spending slowed late in the spring and may end early in the summer.
However, the multifamily market is beset with still worsening economic conditions. Apartment investors face intensifying competition from vacant condos and single-family homes as well as continuing declines in the number of potential renters as households double up in a depressed and worsening job market. The condo market has stabilized in most of the country, along with the single-family market, but remains severely depressed in the major condo market in Florida, Nevada and Arizona where the oversupply is the most serious.
April's 81,000 multifamily starts may turn out to be the low point in this cycle, but May’s 131,000 multifamily starts will probably be the average for multifamily starts well into next year.
The pickup in housing starts got a big boost from the $8,000 federal tax credit for first-time buyers. The recent move to allow buyers to borrow the $8,000 – for a downpayment – if they get an FHA mortgage came too late to have much impact on May starts but will provide an additional boost during the summer. the initial burst of added single family starts will quickly turn to steady but slow improvement over the next few years.
Housing is emerging from the recession before the rest of the economy so housing demand growth will develop very slowly. Homebuilders do not have the resources or credit access to build ahead of demand. And the financially marginal buyers that usually drive the surge of home buying early in a recovery period do not have the credit access to do this in this recovery. Mortgage rates are already being pushed higher by the massive federal borrowing instead of the usual lingering at low levels into the early months of a recovery. Also, the pace of foreclosures is likely to pick up in the next year as more households run out of the resources to keep their homes.
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