Housing starts slump 5.9 percent in May: why builders aren’t sweating it

home sales

With housing starts taking such a big hit in May, why aren’t builders panicked? It has a lot to do with the growing gap between multi- and single family builder success and permit levels.

Both single- and multi-family housing starts pushed national housing production down 6.5 percent in May, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

Single-family housing starts were down 5.9 percent to a seasonally adjusted annual rate of 625,000 units in May. Meanwhile, multifamily production fell 7.6 percent to a seasonally adjusted annual rate of 376,000 units.

Regardless, builders aren’t sweating it because permit levels (which is the promise of future production) are actually up nearly 4.0 percent.

“The dip in single-family production shows builders continue to move carefully in adding inventory,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Del. “They are also facing supply chain issues, such as access to lots and labor.”

NAHB Chief Economist David Crowe said, “The modest increase is evidence that builders expect continued release of pent-up demand and a gradual expansion of the housing market. We are still forecasting a 12 percent increase in total housing starts for the year.”

Regional housing data varied

In May, combined single- and multifamily housing production fell in the Northeast, the Midwest and the West, with respective losses of 25.2 percent, 16.5 percent and 16.3 percent, and the South posted a 7.3 percent gain.

The Northeast and Midwest registered overall permit gains of 3.5 percent and 3.8 percent, respectively, while the South and West posted respective losses of 7.3 percent and 15.2 percent.

Housing is on the road to recovery, and while hiccups continue to make many flinch, the overall health is slightly improving, and permits being on the rise is a good sign for builders, as new home construction was one of the hardest hit by the brutal recession. Watch for single family and multifamily to perform unevenly, as multifamily remained hot throughout the recession and single family builders are making a strong comeback to delete the gap between the two.

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