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New Residential Construction (Census Bureau)-May 09

(June 16, 2009 Release)


• Residential housing construction registered 532,000 units in May, up 17.2 percent from April. The rise in housing starts was much stronger than expected.
• The 3 month average is 502,000 which continues to reflect a dismal home building marketplace.

• Most of the increase in starts were due to multi-family construction activity rather than single family activity. Single family starts were up 7.5 percent in May while multi family starts were up 61.7 percent.
• Building permits rose 4.0 percent in May to 518,000, which portends favorably for future residential construction activity.

Source: Census Bureau

New Residential Construction (Mil. SAAR)
May 09 Apr 09 3 mo Avg 6 mo Avg
Housing Starts 0.532 0.454 0.502 0.521
% change 17.2 -12.9
Single Family 0.401 0.373 0.378 0.374
% change 7.5 3.3
Multi-Family 0.131 0.081 0.124 0.147
% change 61.7 -49.4
Northeast 0.051 0.050 0.057 0.055
% change 2.0 -27.5
Midwest 0.080 0.072 0.083 0.079
% change 11.1 -26.5
South 0.257 0.220 0.250 0.267
% change 16.8 -19.7
West 0.144 0.112 0.112 0.120
% change 28.6 40.0
Total Building Permits 0.518 0.498 0.509 0.529
% change 4.0 -2.5


The larger than expected increase in housing starts in May was welcome news. However, a substantial amount of the rise can be attributed to multifamily construction activity which rose 61.7 percent. The multifamily component is usually erratic from month to month and is not as reliable as the single family component which was up 7.5 percent for the month. The good news is that single family starts have been steadily rising since January of this year. The cyclical low for single family starts was 357,000 in January. Another peice of good news was the rise in housing permits, suggesting that homebuilding activity is beginning to pick up in some regions of the nation. The West region is particularly active in new residential construction.

Today’s housing starts data suggests that the housing sector may be improving. All three major housing measures- starts, existing home sales and new home sales- are above their cyclical lows. And even though housing inventories remain excessive, the supply of homes on market has slowly come down. Further, new home sales have inched upward recently, while new home supply has meaningfully come down, permitting home builders to begin digging holes in the ground again. Furthermore, mortgage rates are near historic lows and home prices have dropped considerably, improving affordability conditions. We also believe that the fiscal stimulus package offers a positive influence on the housing sector. Finally, Obama’s foreclosure mitigation plan is expected to slow the pace of foreclosures, providing more opportunities for new home sales.

On balance, the housing sector remains very weak and there remain risks to the downside; there has been upward pressure on mortgage rates in recent weeks. But, recent market developments suggest that the housing correction may be winding down. We continue to believe that the residential construction marketplace will remain weak for the remainder of this year, but at least, the worst may be over.

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