U.S. Housing Starts Surge as Builders Rev Up Single-Family Home Construction in May, While a Housing Shortage Drags On

By Aarthi Swaminathan

(Getty Images)

The numbers: Construction on new American homes jumped 21.7% in May, as homebuilders ramp up building single-family homes to meet strong demand from buyers.

Housing starts rose to a 1.63 million annual pace last month from 1.34 million in April, the government said Tuesday. That’s how many houses would be built over an entire year if construction took place at the same rate in every month as it did in May.

Economists were expecting a slight decline of about 0.8%. The numbers are seasonally adjusted.

This is the second month in a row that starts are up. The pace of construction was the highest since last April, when starts hit a 1.8 million pace.

The surge in construction this spring was led by the Midwest.

Both single and multi-family construction rose in May. Keen interest from would-be home buyers is creating strong demand for new homes. These buyers continue to face a lack of options in the resale market.

Building permits, a sign of future construction, rose 5.2% to a 1.49 million rate.

Key details: As the weather warms up, construction pace has picked up considerably.

The construction pace of single-family homes rose 18.5% in May while apartment building rose 28.1%.

Home builders were most active in the Midwest, where housing starts rose by 67% from the previous month. The Midwest also led the nation in terms of single-family construction.

Permits for single-family homes rose 5.2% in May while permits in buildings with at five units or more rose 7.8%.

Housing starts are up on an annual basis for the first time in nearly a year. The annual rate of total housing starts rose 5.7% from last May.

Big picture: New construction is a bright spot in an otherwise despondent housing market. For the buyers who brave 6% mortgage rates, there are few options in the resale market, which continues to funnel demand for new homes.

In fact, demand is so strong that homebuilders are pulling back on sales incentives, such as price cuts, the National Association of Home Builders reported on Monday.

Builders also reported that they were feeling upbeat about the housing market for the first time in nearly a year.

What are they saying? “To say that we did not see this one coming would not even come close to capturing the degree to which the May residential construction data caught us off guard,” Richard Moody, senior vice president and chief economist at Regions Financial Corporation, wrote in a note.

“This is without question an exaggeration of the underlying reality and a reminder that the housing starts data are among the most volatile and random of the government’s major economic indicators,” Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, wrote in a note.

“Having said that,” he added, “the housing sector broadly appears to be healing remarkably fast after enduring a historic shock in affordability last year, when 30-year mortgage rates more than doubled.”

Market reaction: U.S. stocks were down in early trading on Tuesday. The yield on the 10-year Treasury note rose above 3.7%.

Via Realtor.com