- U.S. housing starts declined in May by 0.9% to 1.27 million units (annualized) from an upwardly revised 1.28 million units in April.
- The decline was concentrated in the single-family segment, which fell by 6.4% to 820k. The more volatile multi-family segment posted a gain of 10.9% to 449k.
- Permits advanced by 0.3% in May to 1.3 million. Single-family permits were up 3.7%, breaking five consecutive months of declines, but multi-family permits fell by 5.0%, reversing much of the gain seen in the previous month.
- On a regional basis, starts was down across all regions but the South, which rose 11.2%. The Northeast was down by 45.5%, the Midwest by 8.0% and the West by 2.4%.
Key Implications
- After a good showing over the past two months (even better on revisions), starts turned down in May. Higher construction costs may be part of the story. The tight labor market has also driven up wages for construction workers, adding to margin pressures. Indeed, these concerns have shown up in recent homebuilder sentiment surveys, which fell in June for the first time this year.
- Declining mortgage rates and rising wages have supported housing affordability and there are nascent signs this is showing up in greater housing demand. With low vacancy rates, this should ultimately lead to increases in construction, though elevated uncertainty and rising costs may slow this process.
