I said last week that higher new home sales and rising homebuilders’ optimism foretell a strong summer sales season if builders and existing-home inventories don’t run out of housing stock. We are now seeing more single-family construction to meet the demand, particularly in the Midwest where housing is more affordable.
The problem has been that not enough existing homes are for sale, hence the below-normal inventory of total homes for sale, which had been spurring higher construction of apartments. We know there is a tremendous housing shortage of all types of residential units.
So the May jump in single-family construction portends a strong summer selling season and bottom to the housing shortage.
“Privately‐owned housing starts in May were at a seasonally adjusted annual rate of 1,631,000. This is 21.7 percent above the revised April estimate of 1,340,000 and is 5.7 percent above the May 2022 rate of 1,543,000,” said the NAR. “Single‐family housing starts in May were at a rate of 997,000; this is 18.5 percent above the revised April figure of 841,000. The May rate for units in buildings with five units or more was 624,000.”
“The May housing starts data and our latest builder confidence survey both point to a bottom forming for single-family residential construction earlier this year,” said NAHB Chief Economist Robert Dietz. “There have been some improvements to the supply-chain, although challenges persist for items like electrical transformers and lot availability.”
“However, due to weakness at the start of the year, single-family housing starts are still down 24% on a year-to-date basis.” That’s a shortfall of more than one million existing homes sold in one year, I said recently. So rental housing construction is also surging.
And builder confidence in the market for newly built single-family homes in June rose five points to 55, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released on Tuesday. This marks the sixth straight month that builder confidence has increased and is the first time that sentiment levels have surpassed the midpoint of 50 since July 2022.
Multi-family starts (blue, 2+ units in graph) increased in May compared to April. Multi-family starts were up 33.2 percent year-over-year in May. Single-family starts (red) increased sharply in May and were down 6.6 percent year-over-year.
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.
Keen interest from would-be home buyers is creating strong demand for new homes, say the builders. In fact, a large part of the demand is families with children in spite of the Fed’s threat to continue to boost interest rates this year.
These buyers continue to face a lack of options in the resale market.
Harlan Green © 2023
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