In May, construction on new American homes experienced an impressive 21.7% surge, largely due to homebuilders shifting their focus to meet growing demand for single-family homes. Last month, housing stats hit a 1.63 million annual pace, up from 1.34 million in April. Economists were expecting a slight decline, but the numbers are seasonally adjusted and indicate a positive trend. The Midwest led the charge in construction this spring, and interest from eager home buyers is keeping demand high. Multi-family construction also rose, though the focus remains on single-family homes. Building permits are also up, indicating continued growth in future construction.
Key Factors:
The construction industry is on the rise as the weather gets warmer. In May, single-family home construction increased by 18.5%, while apartment building construction rose by 28.1%. The Midwest saw the most activity, with housing starts surging 67% from the previous month and leading the nation in single-family construction.
Permits for single-family homes also saw a boost, rising by 5.2%, while permits for buildings with at least five units increased by 7.8%.
This optimistic trend is not just a fluke – housing starts are up on an annual basis for the first time in nearly a year, with the annual rate of total housing starts increasing by 5.7% from last May. Keep an eye on the construction industry as it continues to ramp up.
The Big Picture:
Despite a struggling housing market, new construction offers a ray of hope for those who are willing to take on 6% mortgage rates. Currently, options are limited in the resale market, leading more buyers to look towards newly built homes.
The National Association of Home Builders has reported that demand for new homes is so high, that builders have started to reduce sales incentives, such as price cuts. This is an indication of a more positive outlook for the housing market, which builders have expressed for the first time in almost one year.
What is Being Said?
The May residential construction data has taken economists by surprise. Richard Moody, chief economist at Regions Financial Corporation described the shock as unprecedented. However, Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets points out that the housing starts data is one of the most volatile economic indicators released by the government. Despite this, Stanley notes that the housing sector is healing quickly after last year's historic shock in affordability where 30-year mortgage rates doubled. Builders are also reporting an increase in positive sentiment towards the housing market after nearly a year of pessimism.
Market reactions:
On June 20th, early trading saw a decline in U.S. stocks, while the yield on the 10-year Treasury note exceeded 3.7%. Stay informed on how these changes can affect your investments.
