May 24, 2018

Plunge in Housing Starts to Create ‘Emergency’?

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Plunge in Housing Starts to Create ‘Emergency’?

After strong single-family home starts earlier this year, new-home construction is showing signs of softening. The Commerce Department reports that housing starts nationwide, including single-family and multifamily production, dropped 5.5 percent month over month in May to a seasonally adjusted annual rate of 1.09 million units.

Single-family production alone decreased 3.9 percent last month to 794,000 units, and single-family permits, a gauge of future construction activity, was down 1.9 percent to 779,000 units. “Housing shortages look to intensify and may well turn into a housing emergency if the discrepancy between housing demand and housing supply widens further,” says Lawrence Yun, chief economist for the National Association of REALTORS®. “The falling housing starts and housing permits in May are befuddling given the lack of homes for sale and the quick pace of selling for newly constructed homes. Meanwhile, job creation of a consistent 2 million jobs a year will push up housing demand further. One thing that is moving up is the housing costs for consumers: higher home prices and higher rents.”

The West was the only region to see an increase in single-family and multifamily housing production last month, jumping 1.3 percent. The Northeast remained flat, while housing starts dropped by 8.8 percent in the South and by 9.2 percent in the Midwest.

Still, Robert Dietz, chief economist for the National Association of Home Builders, notes that on a year-over-year basis, single-family starts are up 7.2 percent as builders add inventory to the market. “Ongoing job growth, rising demand, and low mortgage rates should keep the single-family sector moving forward this year, even as builders deal with ongoing shortages of lots and labor,” says Granger MacDonald, NAHB chairman.

Multifamily starts posted a 9.7 percent plunge in May, reaching a seasonally adjusted annual rate of 289,000 units. Permits for multifamily starts were also down 10.4 percent in May to 389,000, the Commerce Department reported.

—REALTOR® Magazine