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Housing Starts Data: May 2015

June 18, 2015
Author: Daniel Stuber

 In what has become the new normal, the monthly housing starts rollercoaster ride continues its unpredictable track into early summer. Coming off of an eight-year high and an impressive April rally that posted a 20.2 percent increase over the revised March estimate, the segment simply couldn’t maintain its upward trajectory. While the market is accustomed to witnessing the month-to-month peaks and valleys of housing starts data, an early slowdown in May sure seems like an indication that economic growth is, at best, flat.

May housing starts were at a seasonally-adjusted annual rate (SAAR) of 1,036,000, or 11 percent below the revised April data and estimate of 1,165,000. However, this number represents a 5 percent increase over the May 2014 rate of 986,000. Also of note, single-family housing starts decreased 5 percent below the revised April figure of 719,000.

The 30-year fixed mortgage rate continued its slow Spring increase, finishing the month of May at 3.97 percent compared to 3.79 percent at the beginning of April. Perhaps accounting for the delay in the monthly Department of Commerce data and, despite the 50 percent decrease in May housing starts, home builder confidence actually rose five points to a level of 59, which is the highest it has been since September 2014.

Interestingly, new applications for building permits in May were at a SAAR of 1,275,000, which is nearly 12 percent above the revised April rate of 1,140,000 and 25 percent above the May 2014 estimate of 1,017,000. (Single-family permits were just 2.6 percent above the revised April figure).

While it is tempting to forecast a productive summer based on these numbers, economics author Dave Kranzler has other ideas about the reality of this data. He says, “While housing starts dropped, analysts and the media pointed to the big jump in building permits as an indicator that the drop in starts would be temporary. However, an analysis of the data behind the headline number for permits shows that the number was heavily distorted by an outlier spike in apartment building permits in the northeast.” He continues, “The data… shows that permits were heavily skewed by a 77.7% month to month and a 165% year over year jump in May apartment building permits in the northeast. Thus, it would appear that the permits data was heavily distorted by technicality in the way in which permit data is collected and calculated by the Census Bureau and is not reflective of an overall surge in housing permits.”

With extreme weather already affecting much of the country, another major surge in housing starts would be unlikely over the next few months. Forecasts call for an active western wildfire season and lumber prices may increase due to constrained supply conditions, but lumber demand due to housing starts doesn’t appear to be an issue at this point. We should probably expect the housing rollercoaster ride to slow down and (somewhat) level out, posting modest month-to-month increases and decreases through August.

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