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Housing Starts Rise, But Permits Dip In May

June 20, 2006

Total housing starts rebounded from a 13-month low to increase 5.0 percent in May as builders worked down a backlog of unfilled orders under unusually good weather conditions. Issuance of new building permits fell by 2.1 percent, continuing the moderate downslide from the peak last September.

The pace of new-home construction rose to a seasonally adjusted annual rate of 1.957 million units, according to figures released by the Commerce Department today. This was 3.8 percent below the pace of a year ago. At the same time, permit issuance dipped to a monthly rate of 1.932 million units. This was 8.5 percent behind the May 2005 pace.

“NAHB’s surveys of builders have been showing a decline in confidence since the middle of last year, and builders have been drawing down the backlog of unused permits for houses sold earlier,” said David Pressly, president of the National Association of Home Builders (NAHB) and a home builder from Statesville, N.C. “Many builders have reported that they are offering incentives in an effort to limit the number of potential cancellations.”

“The rebound in total housing starts for May primarily reflected typical volatility in the multifamily market, and the modest increase in single-family starts largely reflected a build-out of units that had been sold and permitted earlier,” said NAHB Chief Economist David Seiders. “Strong numbers in the South and West regions may also have been supported by some rebuilding in the wake of last year’s record-breaking hurricane season.”

Single-family housing starts were up 2.1 percent in May to a pace of 1.586 million units for the month. Multifamily housing construction rose 19.7 percent for the month to a seasonally adjusted pace of 371,000 units.

Three of four regions reported increases in housing starts for the month. Construction of new homes and apartments rose 1.7 percent in the Northeast, 8.5 percent in the South and 15.8 percent in the West. Housing starts were down 15.8 percent in the Midwest, following a sizeable increase in April.

“Today’s reported increase in housing starts is not inconsistent with an ongoing moderate erosion of housing market activity, a pattern shown by both today’s permit numbers and NAHB’s surveys of single-family home builders,” Seiders said. “The builders still are reporting reductions in housing demand, and we expect both housing starts and building permits to lose some ground as 2006 progresses.”

Single-family permit issuance was down 2.1 percent on a national basis to a pace of 1.466 million units. The pace of multifamily permit issuance also dipped 2.1 percent to a pace of 466,000 units for the month.

Source: NAHB

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