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  • U.S. housing starts surge as builders rev up single-family home construction in May, while a housing shortage drags on 

    U.S. housing starts surge as builders rev up single-family home construction in May, while a housing shortage drags on 

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    The numbers: Construction on new American homes jumped 21.7% in May, as homebuilders ramp up building single-family homes to meet strong demand from buyers.

    Housing starts rose to a 1.63 million annual pace last month from 1.34 million in April, the government said Tuesday. That’s how many houses would be built over an entire year if construction took place at the same rate in every month as it did in May.

    Economists were expecting a slight decline of about 0.8%. The numbers are seasonally adjusted.

    This is the second month in a row that starts are up. The pace of construction was the highest since last April, when starts hit a 1.8 million pace.

    The surge in construction this spring was led by the Midwest.

    Both single and multi-family construction rose in May. Keen interest from would-be home buyers is creating strong demand for new homes. These buyers continue to face a lack of options in the resale market. 

    Building permits, a sign of future construction, rose 5.2% to a 1.49 million rate.

    Key details: As the weather warms up, construction pace has picked up considerably.

    The construction pace of single-family homes rose 18.5% in May while apartment building rose 28.1%.

    Home builders were most active in the Midwest, where housing starts rose by 67% from the previous month. The Midwest also led the nation in terms of single-family construction.

    Permits for single-family homes rose 5.2% in May while permits in buildings with at five units or more rose 7.8%.

    Housing starts are up on an annual basis for the first time in nearly a year. The annual rate of total housing starts rose 5.7% from last May.

    Big picture: New construction is a bright spot in an otherwise despondent housing market. For the buyers who brave 6% mortgage rates, there are few options in the resale market, which continues to funnel demand for new homes. 

    In fact, demand is so strong that homebuilders are pulling back on sales incentives, such as price cuts, the National Association of Home Builders reported on Monday. 

    Builders also reported that they were feeling upbeat about the housing market for the first time in nearly a year.

    What are they saying? “To say that we did not see this one coming would not even come close to capturing the degree to which the May residential construction data caught us off guard,” Richard Moody, senior vice president and chief economist at Regions Financial Corporation, wrote in a note.

    “This is without question an exaggeration of the underlying reality and a reminder that the housing starts data are among the most volatile and random of the government’s major economic indicators,” Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, wrote in a note.

    “Having said that,” he added, “the housing sector broadly appears to be healing remarkably fast after enduring a historic shock in affordability last year, when 30-year mortgage rates more than doubled.”

    Market reaction: U.S. stocks
    DJIA,
    -0.59%

    SPX,
    -0.39%
    were down in early trading on Tuesday. The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.721%
    rose above 3.7%.

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  • Home builders sentiment index falls for record tenth month in a row in October. Home builders say the ‘situation is unhealthy and unsustainable.’

    Home builders sentiment index falls for record tenth month in a row in October. Home builders say the ‘situation is unhealthy and unsustainable.’

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    The numbers:  The National Association of Home Builders’ (NAHB) monthly confidence fell 8 points to 38 in October, the trade group said on Tuesday.

    It’s the tenth month in a row that the index has fallen.

    Outside of the pandemic, the October reading of 38 is the lowest level since August 2012.

    A year ago, the index stood at 80.

    The index’s ten-month drop is a new record. The index last fell for 8 months straight in 2006 and 2007.

    Key details: All three gauges that underpin the overall builder-confidence index fell.

    • The gauge that marks current sales conditions fell by 9 points. 

    • The component that assesses sales expectations for the next six months fell by 11 points.

    • And the gauge that measures traffic of prospective buyers fell by 6 points.

    All four NAHB regions posted a drop in builder confidence, led by the south and the west. 

    It’s also likely that this year will be the first time since 2011 that single-family starts see a decline, the NAHB added.

    Big picture: Builders continue to struggle to find buyers with the current rate environment.

    Now they’re saying they’re worried about that depressed demand impacting supply moving forward.

    Specifically, they’re concerned about housing affordability worsening, with potentially fewer new homes being built in the future.

    Mortgage rates have doubled from last year, now exceeding 7%, which has considerably cooled buyer demand. 

    Home price growth is moderating, but prices have not come down substantially — yet. 

    The median sales price for a new home was $436,800 in August, according to the U.S. Census Bureau.

    What the NAHB said: Builders are expecting single-family starts to fall for the first time in 11 years — and expect additional declines through 2023, said NAHB Chief Economist Robert Dietz, due to the Federal Reserve’s projected rate hikes to control inflation.

    “While some analysts have suggested that the housing market is now more ‘balanced,’ the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates, and ongoing elevated construction costs continue to price out a large number of prospective buyers,” he added.

    “This situation is unhealthy and unsustainable,” Jerry Konter, a home builder and developer from Savannah, Ga. and the NAHB’s chairman, said in a statement.
    “Policymakers must address this worsening housing affordability crisis,” he added.

    What are they saying? “The housing sector – sentiment, building activity and sales – is collapsing under the weight of a rapid increase in interest rates and elevated prices, which are crimping affordability and demand,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a note.

    So expect building activity to be depressed, she added.

    Market reaction: The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.989%
    fell to 3.98% on Tuesday morning.

    While the SPDR S&P Homebuilders ETF
    XHB,
    +2.15%
    traded slightly higher during the morning session, and the big home-builder stocks, from D.R. Horton Inc.
    DHI,
    +2.90%
    to Toll Brothers
    TOL,
    +1.87%
    to Lennar
    LEN,
    +2.97%    ,
    edged higher.

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