Total housing starts were reported at a seasonally adjusted (SA), annual rate of 1,092,000 for the month of May. On a three month moving average (3MMA), basis SA total starts came-in at 1,146,000, a 1.2% year on year (y/y), growth rate. Single family housing starts jumped by 8.5%, 3MMA y/y, while multi-family tumbled, -13.2%, 3MMA y/y.
Table 1 breaks down starts and permit detail for single family (SF) and multi-family (MF) by region. All data references are three month moving averages y/y, (3MMA y/y), which helps smooth out spikes in single month data and therefore gives a more realistic viewpoint on the pulse of home building activity.
Figure 1 shows SA housing starts history from 2011 to present. The South dominates with 50.5% of the last 3 months total and has the most aggressive growth slope. The West had 26.7% share of starts, followed by the Midwest with 14.3% and the Northeast with 8.4%.
Year on year total starts in May were a mixed bag, up in the West (20.0%) and South, (0.8%), but down in the Northeast (-18.1%) and Midwest, (-11.0%). Single Family starts were higher in the West (18.2%), South (7.2%) and Midwest (4.2%) y/y, but declined in the Northeast (-1.2%). Year on year MF starts plummeted in the Northeast (- 33.5%) and Midwest (-38.2%) and South (-15.6%). However MF starts surged in the West by 23.2% y/y.
Nationally, total permits increased 9.4% 3MMA y/y to 1,219,000 units with SF permits up 9.2% and MF permits up 9.7%. All regions reported stronger growth in total building permits y/y. The Northeast reported a 26.7% y/y rise in permits, a combination of a slight (0.6%) gain for SF and a huge 56.0% y/y gain for MF. The Midwest total permits ticked-up 0.5% y/y (SF +4.3%, MF -5.7%), while the South posted overall permit growth of 8.3%, (SF +11.2%, MF +0.9%). The West saw its residential permits increase by 11.1%, (SF +10.6% y/y, MF 12.0%).
Figure 2 shows permit history for both SF and MF from 2012 to present. The slope of the SF line shows relatively consistent growth over the time horizon presented as depicted by the trend-line. The multi-family line albeit more volatile than SF had a similar growth trajectory as SF through the mid-2015. Since then the rate of growth has averaged 436,000 annualized rate. Thus far in 2017, the average MF permit rate has fallen to 427,000 hitting a 13 month low of 389,000 in May.
Permits gage future housing builds. The column on the far right in Table1 illustrates permits minus starts. For the nation as a whole permits minus starts = +73,000, with SF negative 15,000 but with MF offsetting this with positive 88,000 units. This suggests that housing construction should rise in the coming months.
According to National Association of Realtors chief economist Lawrence Yun, sales contract activity is fading this spring because significantly weak supply levels are spurring deteriorating affordability conditions. “Much of the country for the second straight month saw a pullback in pending sales as the rate of new listings continues to lag the quicker pace of homes coming off the market,” he said. “Realtors are indicating that foot traffic is higher than a year ago, but it’s obviously not translating to more sales.” “Prospective buyers are feeling the double whammy this spring of inventory that’s down 9.0 percent from a year ago and price appreciation that’s much faster than any rise they’ve likely seen in their income.” Unfortunately, Yun believes there is little evidence these astoundingly low supply levels are going away soon. Homebuilding activity has not picked up enough this year and too few homeowners are listing their home for sale.
At Gerdau, we routinely monitor the US housing market because historically new home construction has preceded non-residential construction and therefore is an excellent barometer to foresee the likely future demand for construction steel products.