Higher Inflation Hasn’t Crushed Housing Starts


The Census Bureau report released today shows that housing starts beat their estimates for last month, coming in at 1,350,000.  Numbers from the previous months were revised slightly lower. Even though the headline numbers beat estimates, the housing starts and permits story has stayed the same this entire cycle: slow and steady growth. These numbers are solid, however when taken in the context of higher labor cost, higher lumber prices and fears of higher mortgage rates.

From Census:

June Census starts

Building Permits:

Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,301,000. This is 4.6 percent (±1.4 percent) below the revised April rate of 1,364,000, but is 8.0 percent (±1.3 percent) above the May 2017 rate of 1,205,000. Single-family authorizations in May were at
a rate of 844,000; this is 2.2 percent (±1.0 percent) below the revised April figure of 863,000. Authorizations of units in buildings with five units or more were at a rate of 421,000 in May.

Housing Starts:

Privately-owned housing starts in May were at a seasonally adjusted annual rate of 1,350,000. This is 5.0 percent (±10.2 percent)* above the revised April estimate of 1,286,000 and is 20.3 percent (±14.4 percent) above the May 2017 rate of 1,122,000. Single-family housing starts in May were at a rate of 936,000; this is
3.9 percent (±10.6 percent)* above the revised April figure of 901,000. The May rate for units in buildings with five units or more was 404,000.

The solid growth in multifamily construction isn’t getting enough play this year.  In today’s report we saw 25.1% growth year over year in this category.  To provide context, in 2017 multifamily construction was down. This year multifamily construction is up 13% year to date, outpacing single family construction growth which is up a healthy 9.8% year to date. The softness is really coming from the permit side of things this year.

From Calculated Risk:

Changes in mortgage rates (up or down) have had little to no effect on housing start trends in this cycle. We have seen a slow and steady rise in housing starts even with the longest job expansion ever recorded in U.S. history and soon to be the longest economic expansion ever recorded in U.S. history. The key here is that housing starts and new home sales are still low in context to this expansion. Some people feared that with higher mortgage rates, higher unit labor cost and rising lumber cost that it could create a negative year in housing starts but that hasn’t occurred yet.

From Doug Short:
June Housing Starts ADJ pop

The number of construction job openings has been heading lower since the peak last year, and showed a slight decrease in the current report. Total employment for construction is roughly 515,000 jobs away from what it was during the peak of the housing bubble years.

From BLS: 

JUNE JOLTS COnstruction

From Fred: 
Construction employment

So far housing economics for 2018 have looked pretty much exactly as I expected.  New home sales are still showing growth as are housing starts.  Existing home sales are trending flat to negative. Existing home sales may beat my high expectations of flat sales for the year.  If new home sales can grow more than 5%, then that will also beat my expectation. Housing starts still singing the song baby lets take it nice and slow.

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami