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May’s Single-Family Starts Post Solid Gain

Overall housing starts rose 21.7% in May, and single-family home starts increased 18.5%. A big reason? Buyers can’t find enough existing homes to consider.

WASHINGTON – Limited existing-home inventory, solid buyer demand and improving supply chains helped push May single-family home starts to an 11-month high.

Overall housing starts increased 21.7% to a seasonally adjusted annual rate of 1.63 million units – the number of housing units builders would begin if development kept the same pace for the next 12 months – according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

Within that overall number, single-family starts increased 18.5% to a 997,000 seasonally adjusted annual rate, though they’re still down 6.6% year-to-year. The multifamily sector, which includes apartment buildings and condos, increased 27.1% to an annualized 634,000 pace.

“Single-family permits and starts increased in May as builders boosted production to meet unmet demand,” says Alicia Huey, chairman of the National Association of Home Builders (NAHB). “Despite elevated interest rates that make the cost of housing more expensive, the lack of existing home inventory in most markets is leading to increased demand for new construction.”

“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,” adds 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.”

Dietz cites weakness early in 2023 for yearly single-family starts, however, which “are still down 24% on a year-to-date basis.”

But single-family completions are down just 1.2% as projects started at the end of last year finish.

NAHB says one statistic stands out in the latest report: In May, the number of single-family homes under construction was down 16% compared to a year earlier, while the number of apartments under construction rose 17% – the highest level since September 1974.

Dietz also noted that the May housing data signals a positive development on the inflation front. “Additional housing supply is good news for inflation data, because more inventory will help reduce shelter inflation, which is now a leading source of growth for the CPI (Consumer Price Index),” he says.

On a regional and year-to-date basis, combined single-family and multifamily starts are 11.0% lower in the Northeast, 15.0% lower in the Midwest, 12.3% lower in the South and 24.7% lower in the West.

Overall permits – a sign of future housing starts – increased 5.2% to a 1.49 million unit annualized rate in May. Single-family permits increased 4.8% to an 897,000 unit rate, though they’re down 25.5% year-to-date. Multifamily permits increased 5.9% to an annualized 594,000 pace.

Looking at regional permit data on a year-to-date basis, permits are 21.1% lower in the Northeast, 24.7% lower in the Midwest, 16.5% lower in the South and 24.1% lower in the West.

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