Drop in Housing Starts Could Intensify Inventory Issues

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Both permits for construction of privately-owned housing
units and beginning construction in May were well below expectations, the
second consecutive month in which both declined.  Each of the two measures was also below its
respective pace one year earlier.

The U.S. Census Bureau and the Department of Housing
and Urban Development said permits for residential housing units were issued at
a seasonally adjusted annual rate of 1,168,000. 
This was 4.9 percent off the April rate of 1,228,000 units, a revision from
its original estimate of 1,229,000.  The
May number also fell short, by 0.8 percent, of the 1,178,000-permit pace in May
2016.

Analysts polled by Econoday had been looking for
permits in the range of 1,240 to 1.260 million. The consensus was 1.249
million.

 

 

Single family authorizations were at a rate of
779,000, down 1.9 percent from April’s reported 794,000 units, an upward
revision from the original report of 789,000. 
The single-family rate was 6.0 percent higher than that of the previous
May.  Multi-family permitting was down
13.9 percent from the April at a rate of 358,000 units, and unchanged from the same
month last year.

On a non-seasonally adjusted basis there were
112,900 permits issued during the month compared to 102,600 in April.  Single-family permits rose from 69,200 to
78,300.

May housing starts fell 5.5 percent from their April
level to a seasonally adjusted annual rate of 1,092,000 units, and were 2.4
percent lower than the May 2016 rate of 1,119,000 units. The April starts
estimate was revised down from 1,172,000 units to 1,156,000.

Expectations were for starts to be in the range of
1.170 million to 1.270 million. The consensus was 1.223 million.

Single family units were started at a rate of 794,000,
3.9 percent off the April pace of 826,000, but up 8.5 percent from starts in
May of last year.  The April estimate was
revised upward by 1,000 units. Multifamily units had a start rate of 284,000
units, down 9.8 percent from April and 25.7 percent from the previous May.

On a non-seasonally adjusted basis starts totaled
102,300 in May compared to 105,700 in April. 
Single family starts dropped 500 units to 76,800.

The negative report prompted the following statement
from the National Association of Realtor’s Chief Economist Lawrence Yun. “Housing shortages look to intensify and may
well turn into a housing emergency if the discrepancy between housing demand
and housing supply widens further. The falling housing starts and housing
permits in May are befuddling given the lack of homes for sale and the quick
pace of selling a newly-constructed homes. Meanwhile, job creations of a
consistent 2 million a year will push up housing demand further. One thing that
moving up is the housing costs for consumers: higher home prices and higher
rents.”

The rate of completions did rise, to an annual rate
of 1,164,000 units, 5.6 percent ahead of the revised (from 1,106,000 units)
estimate of 1,102,000 units in April and up 14.6 percent from the May 2016 rate
of 1,016,000.  Single-family completions
gained 4.9 percent to a rate of 817,000, 12.8 percent above the previous May’s
estimate. Completions of multifamily units rose 12.0 percent to 335,000 units,
18.4 percent more than a year ago.

On a non-adjusted basis, there were an estimated
96,700 housing units completed in May, compared to 83,900 in April.  Single family completions rose from 60,300 to
68,600.

At the end of the reporting period there were
146,600 construction permits outstanding, 80,700 of them for single family
units. Work was underway on 1,076,400 units, 458,600 of which were single
family houses.  All figures are
unadjusted.

Permitting in the Northeast rose 3.3 percent from
April and was 20.4 percent higher than in May 2016. The rate of starts was
unchanged from April, rising 8.8 percent year-over-year. Units were completed
at rates 23.3 percent and 60.9 percent higher than in the two previous periods.

In the Midwest, permits declined 9.4 percent
month-over-month and were down by 1.7 percent on an annual basis. The pace of
housing starts dropped by 9.2 percent for the month and 11.6 percent
year-over-year. Completions lagged the previous month by 17.7 percent and were 12.1
percent lower than the prior year.

There was a slip of 0.3 percent in the number of
permits issued in the South compared to April, but the rate was up 1.9 percent
for the year.  Starts retreated by 8.8
percent from the previous month and by 9.9 percent from last May. The rate of
completion rose 2.4 percent from April and was 12.6 percent higher than a year
earlier.

The West saw both month-over-month and
year-over-year drops building authorizations; 13.1 percent and 11.7 percent
respectively. Starts did rise, gaining 1.3 percent for the month and 17.4
percent annually. Completions were up by slightly more than 25.6 percent and
25.1 percent from the prior periods.

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