06/17/2020

Eye on the Economy

Gain for Single-Family Permits Points to Building Growth

Single-family housing starts were flat in May, albeit off an upwardly revised estimate for construction in April. Single-family starts in May were estimated by Census/HUD at a 675,000 seasonally adjusted annual rate, after a revised estimate of 674,000 for April.

However, the turning point for the market was found in the permits data. Consistent with recent gains in the NAHB/Wells Fargo Housing Market Index (HMI), single-family permits increased by almost 12% in May. Total permits for single-family homes issued in 2020 on a year-to-date basis are 1.8% than the first five months of 2019. An increase in the pace of permits signals gains for single-family starts ahead.

Since the peak rate in February, the pace of single-family construction has declined 35% as of May.

As an indication of how strong the start was for single-family construction in 2020, single-family starts on a year-to-date basis are down just 2.4% relative to the comparable 2019 totals. Thus far, single-family starts are down on a year-to-date basis 23% in the Northeast, 3% in the Midwest, and 3% in the South, but are 4% higher in the West (led by the fast-growing Mountain states).

Construction starts for the multifamily sector, which includes apartment buildings and condos, increased 15% to a 299,000 pace in May. This reflects a 52% decline for multifamily construction relative to the strong January pace at the start of 2020. NAHB’s forecast calls for multifamily construction to decline more than single-family construction as a result of the 2020 downturn.

In terms of economic impact, there were 503,000 single-family homes under various stages of construction in May. This was down more than 2% from April and almost 4% lower than a year ago, as the impact of recent months’ single-family starts declines take hold. It is the lowest total since early 2018.

There were 669,000 multifamily units under construction in May, a slight decline from April (675,000). But this total is 10% higher than May of 2019.