Fresh off residential builder sentiment climbing into positive territory, the newest report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development painted a picture of a housing market that’s gaining steam, with total starts soaring by 21.7% in May.
The surge brought housing starts to a seasonally adjusted annual rate of 1.63 million units, well above April’s downwardly revised count of 1.34 million. The monthly jump was the largest by percentage since the fall of 2016 and the eighth largest since 1959.
By sheer number of construction starts, the gain was likewise impressive. May’s month-over-month jump of 291,000 units was the biggest since the start of 1990.
With construction activity slower to start the year, total starts remain down 15.5% on a year-to-date basis, but the big monthly bounce is positive nonetheless. Overall starts are now up 5.7% year over year, the first annualized gain since April 2022.
The news is especially encouraging when coupled with a report this week that the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index rose five points to a reading of 55. The index, which tracks residential builder confidence in the market for newly built single-family homes, has now increased for six consecutive months, finally clawing past the neutral 50-point threshold for the first time since July 2022.
Single-family starts grew to an 11-month high in May, bounding 18.5% to an annualized pace of 997,000 units. The South, which has recently had more home sales than any other region, was a big driver of May’s national growth, with single-family starts in the region up 21% compared to April.
Low supply of existing homes is keeping momentum going in the new single-family home market and the near term appears to hold more gains. Single-family permits saw a fourth straight monthly increase, up 4.8% in May.
“Mirroring rising builder sentiment, single-family permits and starts increased in May as builders boosted production to meet unmet demand,” NAHB chair Alicia Huey said. “Despite elevated interest rates that make the cost of housing more expensive, the lack of existing home inventory in most markets is leading to increased demand for new construction.”
Multifamily starts saw a May rebound as well, growing by 27.1% from April after two consecutive months of declines. Notably, the number of apartments under construction grew 17% in May, reaching a yearly rate of 994,000 units, the most since 1974.
NAHB chief economist Robert Dietz was hopeful that the rosy May building figures will also trickle into good news for observers of the economy at large.
“Additional housing supply is good news for inflation data,” Dietz said, “because more inventory will help reduce shelter inflation, which is now a leading source of growth for the [Consumer Price Index].”