| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| Starts - Annual Rate | 1.373M | 1.265M to 1.400M | 1.277M | 1.360M | 1.352M |
| Permits - Annual Rate | 1.450M | 1.400M to 1.490M | 1.386M | 1.440M |
Highlights
Starts of new homes are down 5.5 percent in May to 1.277 million units at a seasonally adjusted annual pace compared to 1.352 million units in April, a small downward revision from the previous report. The level is down 19.3 percent from 1.583 million units in the year-ago month. The May level is below the consensus of 1.373 million units in the Econoday survey of forecasters. The May level is the lowest since 1.254 million units in June 2020 when homebuilding was resuming after the closures associated with the Covid-19 outbreak.
Starts of single-family homes are down 5.2 percent in May to 982,000, the first below 1.0 million unit readings since 975,000 in October. Single-family starts are down 1.7 percent compared to May 2023. Starts of multi-unit homes are down 6.6 percent in May to 295,000, and fall 49.5 percent compared to the year-ago month. Starts of multi-unit projects can be volatile, but the year-over-year change reflects that the surge of renters entering the home market during the period of rapidly rising rents has now ebbed. Demand for single-family homes is down in part due to higher mortgage interest rates at a time when prices remain elevated due to lack of inventory, especially for existing units. Home affordability is an issue, but also consumer sensitivity to mortgage rates and willingness to wait to see if rates come down somewhat.
The number of building permits issued is down 3.8 percent in May to 1.386 million after an unrevised 1.440 million in April, and is down 9.5 percent year-on-year. The consensus in the Econoday survey looks for 1.450 million permits. The number of permits is down for a third month in a row and leaves less work in the pipeline for homebuilders. The number of permits issued in May is the lowest since 1.338 million in June 2020, also reflecting the slowdown during the first months of the pandemic when consumers were limiting participation in the housing market during a period of high uncertainty.
Permits for single-family homes are down 2.9 percent in May to 949,000 after 977,000 in the prior month, but up 3.4 percent compared to a year ago. Demand for single-family homes is a bit slower over the past four months, but not absent while inventories of existing homes is limited. Permits are down 5.6 percent for multi-unit homes at 437,000 in May from 463,000 in April, and down 28.8 percent year-over-year.
Starts of single-family homes are down 5.2 percent in May to 982,000, the first below 1.0 million unit readings since 975,000 in October. Single-family starts are down 1.7 percent compared to May 2023. Starts of multi-unit homes are down 6.6 percent in May to 295,000, and fall 49.5 percent compared to the year-ago month. Starts of multi-unit projects can be volatile, but the year-over-year change reflects that the surge of renters entering the home market during the period of rapidly rising rents has now ebbed. Demand for single-family homes is down in part due to higher mortgage interest rates at a time when prices remain elevated due to lack of inventory, especially for existing units. Home affordability is an issue, but also consumer sensitivity to mortgage rates and willingness to wait to see if rates come down somewhat.
The number of building permits issued is down 3.8 percent in May to 1.386 million after an unrevised 1.440 million in April, and is down 9.5 percent year-on-year. The consensus in the Econoday survey looks for 1.450 million permits. The number of permits is down for a third month in a row and leaves less work in the pipeline for homebuilders. The number of permits issued in May is the lowest since 1.338 million in June 2020, also reflecting the slowdown during the first months of the pandemic when consumers were limiting participation in the housing market during a period of high uncertainty.
Permits for single-family homes are down 2.9 percent in May to 949,000 after 977,000 in the prior month, but up 3.4 percent compared to a year ago. Demand for single-family homes is a bit slower over the past four months, but not absent while inventories of existing homes is limited. Permits are down 5.6 percent for multi-unit homes at 437,000 in May from 463,000 in April, and down 28.8 percent year-over-year.
Market Consensus Before Announcement
Housing starts in May are expected to rebound only slightly to a 1.373 million annual rate versus April's much lower-than-expected 1.360 million rate. Permits, at 1.440 million in April and also lower than expected, are likewise seen rising modestly to a 1.450 million rate.
Definition
Housing starts measure the initial construction of single-family and multi-family units on a monthly basis. Data on permits provide indications of future construction. A housing start is registered at the start of construction of a new building intended primarily as a residential building. The start of construction is defined as the beginning of excavation of the foundation for the building.
Description
Two words: Ripple Effect. This narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as housing starts, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Home builders usually don't start a house unless they are fairly confident it will sell upon or before its completion. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises, and income will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture, and landscaping are just a few things new home buyers might spend money on, so the economic"ripple effect" can be substantial especially when you think of it in terms of more than a hundred thousand new households around the country doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, housing starts have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the housing starts data carry valuable clues for the stocks of home builders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.
Importance
The housing starts report is the most closely followed report on the housing sector. Housing starts reflect the commitment of builders to new construction activity. Purchases of household furnishings and appliances quickly follow.
Interpretation
The bond market will rally when housing starts decrease, but bond prices will fall when housing starts post healthy gains. A strong housing market is bullish for the stock market because the ripple effect of housing to consumer durable purchases spurs corporate profits. In turn, low interest rates encourage housing construction.
The level as well as changes in housing starts reveals residential construction trends. Housing starts are subject to substantial monthly volatility, especially during winter months. It takes several months to establish a trend. Thus, it is useful to look at a 5-month moving average (centered) of housing starts.
It is useful to examine the trends in construction activity for single homes and multi-family units separately because they can deviate significantly. Single-family home-building is larger and less volatile than multi-family construction. It is more sensitive to interest rate changes and less speculative in nature. The construction of multi-family units can be substantially influenced by changes in the tax code and speculative real estate investors.
Housing construction varies by region as well. The regions of the United States do not all follow exactly the same economic patterns because industry concentration varies in the four major regions of the country. The regional dispersion can mask underlying trends. The total level of housing construction as well as the regional distribution of housing construction is important.
Housing permits are released together with housing starts every month and are considered a leading indicator of starts. In reality, housing permits and starts typically move in tandem each month. However, there are some exceptions. For instance, if permits are issued late in the month, and weather does not permit immediate excavation, then permits might lead starts. For the most part, though, permits are not a good predictor of future housing starts. Incidentally, housing permits (but not starts) are one of the ten components of the index of leading indicators compiled by The Conference Board.
Home builders usually don't start a house unless they are fairly confident it will sell upon or before its completion. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises, and income will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture, and landscaping are just a few things new home buyers might spend money on, so the economic"ripple effect" can be substantial especially when you think of it in terms of more than a hundred thousand new households around the country doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, housing starts have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the housing starts data carry valuable clues for the stocks of home builders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.
Importance
The housing starts report is the most closely followed report on the housing sector. Housing starts reflect the commitment of builders to new construction activity. Purchases of household furnishings and appliances quickly follow.
Interpretation
The bond market will rally when housing starts decrease, but bond prices will fall when housing starts post healthy gains. A strong housing market is bullish for the stock market because the ripple effect of housing to consumer durable purchases spurs corporate profits. In turn, low interest rates encourage housing construction.
The level as well as changes in housing starts reveals residential construction trends. Housing starts are subject to substantial monthly volatility, especially during winter months. It takes several months to establish a trend. Thus, it is useful to look at a 5-month moving average (centered) of housing starts.
It is useful to examine the trends in construction activity for single homes and multi-family units separately because they can deviate significantly. Single-family home-building is larger and less volatile than multi-family construction. It is more sensitive to interest rate changes and less speculative in nature. The construction of multi-family units can be substantially influenced by changes in the tax code and speculative real estate investors.
Housing construction varies by region as well. The regions of the United States do not all follow exactly the same economic patterns because industry concentration varies in the four major regions of the country. The regional dispersion can mask underlying trends. The total level of housing construction as well as the regional distribution of housing construction is important.
Housing permits are released together with housing starts every month and are considered a leading indicator of starts. In reality, housing permits and starts typically move in tandem each month. However, there are some exceptions. For instance, if permits are issued late in the month, and weather does not permit immediate excavation, then permits might lead starts. For the most part, though, permits are not a good predictor of future housing starts. Incidentally, housing permits (but not starts) are one of the ten components of the index of leading indicators compiled by The Conference Board.
