Housing Starts Muddling Through

Just like in the last housing starts report, not too much is happening here in this marketplace, after an epic rise in housing starts and permits from the Covid19 lows. Since last summer, this runs with my theme that all housing data will moderate from their epic run in the 2nd half of 2020. So even though 2021 looks to have slightly more home sales than 2020, housing starts are just muddling through.

From Census: https://www.census.gov/construction/nrc/pdf/newresconst.pdf

Building Permits

Privately‐owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,681,000. This is 3.0 percent (±1.4 percent) below the revised April rate of 1,733,000, but is 34.9 percent (±2.4 percent) above the May 2020 rate of 1,246,000. Single‐family authorizations in May were at a rate of 1,130,000; this is 1.6 percent (±0.9 percent) below the revised April figure of 1,148,000. Authorizations of units in buildings with five units or more were at a rate of 494,000 in May.

Housing Starts
Privately‐owned housing starts in May were at a seasonally adjusted annual rate of 1,572,000. This is 3.6 percent (±10.3 percent)* above the revised April estimate of 1,517,000 and is 50.3 percent (±15.1 percent) above the May 2020 rate of 1,046,000. Single‐family housing starts in May were at a rate of 1,098,000; this is 4.2 percent (±9.2 percent)* above the revised April figure of 1,054,000. The May rate for units in buildings with five units or more was

We all know about how hot Lumber prices have been, and now Lumber prices have collapsed recently. However, it is still much higher than the lows we saw back in October.

Considering the much-added cost for housing construction and price increases to make the builders profit margins look good, permits have held up so far, much better than I anticipated.

One thing to remember now is this new expansion is much different than the previous one. The housing sector enjoyed a shallow bar for housing starts to work from 2008-2019. This really showed itself when 5% mortgage rates created a spike in new home sales supply, which was fixed after a few months as demand picked up.

The previous expansion had the weakest new home sales and housing starts cycle ever. So, no overinvestment thesis can be said at all. However, due to the slow and steady housing starts from the lows, the sector had legs to walk higher.

Now, that is no longer the case in this expansion. So, when rates rise, we need to be more mindful of the housing permits, starts, and new home sales data. Don’t assume that because total inventory levels are low for the existing home sales market, this gives a clear path for unbridled growth in this sector.

I wrote about this very subject on HousingWire, recently:


The Builders confidence index also tries to find that moderating level as the recent data showed a month-to-month decline. I still believe we can see this data line fall once rates rise, but for now, it’s slowly moving lower. Remember that this is a survey, don’t pay too much attention that this near an all-time high; the rate of change matters more. The parabolic run we had last year was just nuts. If things get weaker in the new homes sales sector, don’t focus on the lows in 2018 or 2020 as a target marker for weakness.

From AdvisorPerspetive:

When HMI declines and monthly supply data rises, then you can get something, even if this means above Pre Covid19 levels that broke to all-time high levels.

Rule of thumb here for the new home sales monthly supply data on a 3-month average.

4.3 months or lower, life is good.
4.4 – 6.4 months, life is ok; need new home sales to grow.
6.5 months and above, builders will pull back.

Currently a tad above 4.2 months.

Existing home sales are coming up next. About 2.5 months ago I have talked we should see a few existing home sales print under 5,840,000 this year, and it didn’t happen in the last report. I still believe this to be the case this year.


Remember, we ended 2020 with just 5,640,000. So the moderation we see in all housing data looks normal to me.

We don’t have a credit boom in housing; we have solid replacement buyer demand. It’s not just the massive demographic patch of ages 27-33. You have to look at total housing demand with a move up, move down, cash, and investor buyers with the millennials together. Our purchase application data looks a lot different from 2018-2021 than 2002-2005 for a reason. We have limits on credit growth, and this is why I love the term replacement buyer. After making two Covid19 adjustments to the stronger than trend year over year growth, we saw this year during the heat months ( Jan – May). We had mid-single-digit growth in this data line now, not the 20% year over year growth trends. As always, Covid19 has done a number on all economic data, so major adjustments and realities need to kick in.

From Calculated Risk:

Don’t forget due to the high comps from the rebound impact from last year, purchase application data will be negative year over year for the rest of the year as seasonality has kicked in this year with a normal trend. All in all today a boring housing starts report, the more interesting report is coming up with new home sales. Have a wonderful rest of your week and enjoy the weekend coming up!

Some of you take a vacation, just got back from Las Vegas and it was great. It was wonderful to see people living again!

Logan Mohtashami is a Lead Analyst for Housing Wire, financial writer, and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami, now retired, was a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987.