June 16, 2017 – Housing starts track the number of new residential construction projects underway over the course of a month. This indicator has implications for demand in construction spending/jobs, consumer wages, and complimentary sectors such as durable household item sales. Along with building permits, housing starts is considered a leading economic indicator.
Housing starts in May came in at an annualized rate of 1.092 million, under expectations of an annualized rate of 1.223 million and 5.5% below April’s downward revision of 1.156 million. Single-family starts fell 3.9% this month to 794,000. Permits for single-homes fell 1.9%. Multi-family homes had a sharp decline of 9.7% to 298,000 and permits dropped 10.4%; however, completions for multi-family homes increased 5.6%.
May housing starts decreasing sharply is an indicator that home builders aren’t confident the home will sell when it is completed. Housing starts have fallen every month since February, possibly indicating a decrease in available lots to be built on or skilled workers to build these homes. Investors should look at new home sales because of the ripple effect it has on the economy. If there is a decrease in new homes being built, there is a decrease in demand for building materials such as lumber and concrete. While these figures are volatile month-to-month and subject to revisions, housing starts have fallen for three straight months and is at the lowest point since last September. A three month decline is not considered a trend, and single family starts are up 8.5% over the last year, but we will be monitoring housing starts closely going forward.