By Manuel Gutierrez, Consulting Economist to NKBA 

  • New home construction rose in May, nearing 1.6 million units.
  • Permits in decline after peaking at beginning of the year.
  • The South continues to outpace other regions in pure unit gains.

 

Construction of new homes has plateaued at a relatively high level, hovering around an annual rate of 1.6 million units over the last six months. May’s 3.6% increase puts housing starts at a rate of 1.57 millions, still at the low end of that range.

Builders have been starting new homes each month this year at a pace that is 300,000 units higher than the total number started last year, which came in at 1.38 million homes.

In contrast to May’s rosier outlook for housing starts, housing permits fell 3% to an annual rate of 1.681 million units. Figure 1 illustrates that this drop follows the declining trend seen throughout 2021.

During the second half of last year, housing permits rose each month. This led to similarly steady increases in the number of houses started each month. However, this trend ended earlier this year, when builders faced the twin challenges of raw material price increases and labor shortages.

Both single-family and multifamily segments of new housing contributed to the overall increase in starts (Figure 2.) Note that multifamily starts in the chart is the sum of buildings of “Five or More Units,” displayed in the bottom right panel, and buildings with “Two-to-Four Units,” not shown in Figure 2.

Although housing starts have leveled at around 1.6 million for the year, they are averaging 300,000 more monthly units built than in 2020.

Single-family starts bounced up 4.2%, continuing the uneven pattern witnessed over the last few months. May’s pace of 1.098 million units is slightly over 100,000 more than last year’s total.

Based on last year’s dismal housing starts between March and May — the start of the pandemic — comparisons are clearly going to be extremely favorable. For instance, year-to-date, 637,000 homes had been started through May, up 25% from the same period last year. For single-family, the year-to-date gain growth is only 8%, with 452,000 houses started in the first five months.

Multifamily starts year-to-date are 20% above last year. So far, builders have started 184,000 units in multifamily buildings.

Year-to-date, all four regions have started more houses this year than the same period in 2020. The largest numerical gains are in the South (Figure 3), which has generated nearly 54,000 more units so far this year. However, on a relative basis, the other three regions have shown even greater improvements.

Specifically, while the South is up 19% over last year, the percentage gains for each of the other three regions are larger: the West is up 27%, the

Midwest is up 37%, and the Northeast is pacing at a whopping 46% higher.

A similar pattern is visible for the single-family segment. The South leads with the largest numerical gain through May, up by about 53,000 units, but only 26% higher. Although a strong percentage gain, it is not as impressive as the West, up 30%; the Midwest, 43% higher, or the Northeast, with a powerful 66% gain.

Finally, Figure 4 reveals the monthly trend in total housing starts for each of the four regions.

The Northeast and Midwest have fluctuated widely from month to month, with the Northeast the only region with a drop in May starts, and generally declining activity this year. In contrast, starts in the other two regions appear to be much more stable.

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