New-home construction in May was at its highest level in more than a year, the latest sign that demand has strengthened while the supply of previously-owned homes remains tight.
Housing starts, a metric that measures the beginning of construction on new homes, rose 21.7% in May to a seasonally-adjusted annual rate of about 1.63 million, the highest level since April 2022, according to Census data released Tuesday.
FactSet
consensus estimates had pegged the rate at a more sluggish reading of 1.4 million. The monthly gain was the greatest since October 2016.
Single-family starts, which typically comprise the bulk of new construction, rose about 18.5% to a seasonally-adjusted annual rate of 997,000—the metric’s highest level since June 2022.
Permits, a leading indicator of future construction, also gained, rising 5.2% from April’s revised level to a seasonally-adjusted annual rate of 1.49 million. Single-family units were permitted at a rate of 897,000.
The market for new homes is benefitting from the lack of previously owned homes on the market. There were nearly 40% fewer homes listed for sale during the four weeks ended June 11 than there were before the pandemic, in June 2018, brokerage Redfin said last week.
Home builder confidence as measured by the National Association of Home Builders gained for the sixth month in a row in June, the trade group said Monday. It was the first time since July 2022 that the metric had risen above its midpoint, indicating an overall positive view of market conditions.
“Builders are feeling cautiously optimistic about market conditions given low levels of existing home inventory and ongoing gradual improvements for supply chains,” said Alicia Huey, the trade group’s chairman.
Lennar, one of the nation’s largest home builders, reported earnings that beat consensus estimates last week. “The economic environment has stabilized as customers have adjusted to and accepted higher-for-longer interest rates,” Lennar CEO Stuart Miller said on a conference call. “The supply chain chaos has normalized, inventories have remained low, and the supply of housing across the country is in very limited supply.”
Conditions have no doubt improved for builders—but May’s reading might not be as strong as it looks at first glance. “While continued growth in new home construction is consistent with improving home builder sentiment and ongoing lack of existing homes for sale, we believe some of the reported strength in starts is likely statistical noise,” Doug Duncan,
Fannie Mae
‘s chief economist, said in an emailed press release. Still, the economist said, the “more modest” gain in single-family permits demonstrates that new home construction “is indeed in recovery from its winter trough.”
Investors will get their next read on the housing market on Thursday, when the National Association of Realtors releases its existing-home sale data for May. Consensus expects that previously owned homes were sold at a seasonally-adjusted annual rate of 4.25 million, down from 4.28 million in April.
Write to Shaina Mishkin at [email protected]
Read the full article here
