Housing Outlook Remains Strong

• Housing starts in May increased by 3.6% to 1.572 million annualized units, with consensus estimate predicting a 3.9% gain to 1.630 million.
• Housing permits in May declined by 3.0% to 1.681 million annualized units, below the consensus expectation of an essentially flat month-over-month result of 1.730 million.
• Supply chain bottlenecks will weigh on construction activity in the near term but building costs have begun to retreat after prices spiked through the first four months of 2021.
  
  

Housing starts rose by 3.6% to 1.572 million annualized units. The consensus expectation was for a 3.9% increase. Starts in April were revised lower by 52 thousand annualized units, divided proportionally between single-family and multifamily starts activity.

Single-family starts rose by 4.2% to 1.098 million annualized units, from a revised April tally of 1.054 million. Multifamily (apartment and condominium) starts also gained in May, rising by 2.4% versus April to 474,000 annualized units; multifamily starts tend to be more volatile than single-family starts.

Residential construction permits declined by 3.0% in May, from an unrevised 1.733 million annualized units in April to 1.681 million. Single-family permits fell by 1.6% to 1.130 million annualized units, while multifamily permits declined by 5.8% to 551,000 annualized units – their largest drop since a 14.9% decline in August 2020. Housing completions were down by 4.1% from April to May, falling from 1.426 million annualized units to 1.368 million.

Housing starts for May 2020 posted another strong result along their volatile march higher since mid-2020. Housing fundamentals are buoyed by strong demand and ample personal savings to support homebuyer sentiment. Mortgage rates continue to decline, having fallen back below 3.0% in May after a brief rise above that threshold in the first quarter of 2020.

Construction costs are abating and look to continue to do so, with lumber futures prices down by 40.3% through mid-June. Supply chain bottlenecks remain a hurdle for new construction activity, but one that will ease as industrial production activity works back toward pre-pandemic normalcy through the rest of this year. Homebuilder stocks in the S&P 500 have cooled modestly in June but are still well above pre-pandemic levels and should continue to take their cues from rampant homebuying appetite in the coming months.

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