Housing Starts Decline, But Hold a High Level

May housing starts and permits swung wildly, driven by even wilder swings in multi-family building. Most residential construction spending occurs in the single-family space, and those numbers were more sedate. Total housing permits were up 11.8%, with starts down 11.1%, driven by a 24.9% spike up and a 20.2% spike down in multi-family permits and starts, respectively. The chart shows single-family activity, where permits were up 2.6% and starts down 5.4%. If even these swings sound large for non-annualized rates, note that they were on par with past experience.

The bottom line is that single-family starts have held for the sixth month out of the past eight at levels right around 700,000 units per year, and this level, in turn, is substantially higher than the 625,000 level that held over 2013 and early-2014. So, while there is not clearly steady growth in homebuilding activity, we do look to have lurched higher this year from the stasis that had gripped homebuilding for almost two years.

The regional details within today’s release were not quite as upbeat. The critical region of the South, which accounts for half of all homebuilding, has trended lower since late last year and is little changed from the prevailing levels of 2014. The strong recent single-family homebuilding levels come from a spring rebound in the Northeast and Midwest and an ongoing uptrend in the West. With the South treading water, it will be tough for single-family homebuilding nationwide to move above the 700,000 unit range.

We had asserted that homebuilding offered the best chance of offsetting weakening US manufacturing activity and thus sustaining an overall 2.0%-2.5% growth trend in GDP. The move to higher homebuilding levels should provide that offset for the next few months, and, hopefully, the factory sector will come back to life later this year.