Single-Family Home Starts Shedding Its Lengthy Funk

It’s all systems go for the single-family housing market according to data released this week that showed starts at a three-decade high in May and permits also surging, based on data from the US Commerce Department.

Housing starts rose to a seasonally adjusted annual rate of 1.631 million units last month from April’s downwardly revised 1.34 million, the Commerce Department said on Tuesday. May’s rate was the highest since April 2022, which was then the highest since 2006, reported Reuters.

The 291,000-unit increase in starts was the most since January 1990, and the 21.7% rise was the largest percentage gain since October 2016.

This is a potential sign that the housing market could be shedding its latest funk, having been hammered by the Federal Reserve’s continuous interest rate hikes.

For the first time since early 2022, last week the Fed didn’t raise rates at its June meeting.

Credit conditions remain tight, GlobeSt.com has reported, which could make it difficult for construction companies to afford to build these homes. Potential young homeowners could be left out of the crowd to buy homes because of insufficient savings.

Starts rose by double-digit margins in the South, Midwest, and West while declining by nearly 19% in the Northeast. Single-family starts were up 18.5% with multi-family projects of five units or more climbing 28.1%.

Construction of multifamily projects, too, could slow despite them securing financing last year as new financing becomes tougher to arrange.

In prepared remarks about the housing market overall, Realtor.com Chief Economist Danielle Hale said this week, “High inflation and the Fed’s actions to curb it have had a significant impact on the housing market this year. And while inflation has begun to ease, the sustained spike in mortgage rates was enough to stifle the housing market after several years of low rates and strong activity.

“The housing market has really seen a double whammy in 2023, with a retrenchment in the number of homes for sale coupled with still-high prices and mortgage rates that have kept both first-time and repeat buyers on the sidelines.”

As for uncanny timing, lumber prices jumped by as much as 3% to $540 per thousand board feet on Tuesday, reported Markets Insider. Prices remain well below the all-time high of $1,700 in May 2021.