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Despite the boost to housing affordability from lower mortgage rates this spring, builders were still cautious in May.



May 2019 Housing Starts, June NAHB

June 18, 2019
By Robert A. Dye, Ph.D., Daniel Sanabria

Housing Starts Ease in May, Despite Lower Mortgage Rates

*     Housing Starts decreased by 0.9 percent in May to a 1,269,000 unit annual rate.
*     Housing Permits were little changed in May, inching up by 0.3 percent, to a 1,294,000 unit annual rate.
*     Builder Confidence fell in June according to the National Association of Home Builders.

Despite the boost to housing affordability from lower mortgage rates this spring, builders were still cautious in May, keeping the level of housing starts and permits little changed from April. Total housing starts eased by 0.9 percent to a 1,269,000 unit annual rate in May. Single-family starts fell by 6.4 percent, to an 820,000 unit rate, well below the recent high of 966,000 from January. Multifamily starts jumped up by 10.9 percent, to a 449,000 unit rate, the strongest rate since January 2018. This was the third double-digit percent gain in multifamily starts in the last four months, so it does look like there is a little momentum on the multifamily side. Total permits were little changed in May, gaining just 0.3 percent for the month, to a 1,294,000 unit annual rate. Single-family permits were up by 3.7 percent, to an 815,000 unit rate. Multifamily permits fell by 5.0 percent, to a 479,000 unit annual rate. The gap between multifamily permits and multifamily starts has been persistent since early 2017 and does not necessarily imply that starts will catch up.

According to the National Association of Home Builders, their builder confidence index fell two points in June, to 64. The NAHB says that builders still face high development and construction costs which are contributing to affordability issues for entry-level buyers.

The May housing starts data will be reviewed by the Federal Reserve as the Federal Open Market Committee begins its two-day meeting this morning. We expect to see no changes to monetary policy at the conclusion of the meeting tomorrow afternoon. However, we do expect Fed Chairman Jay Powell to change the tone of the policy announcement and his comments at the follow-up press conference. We look for the Fed to acknowledge that U.S. and international economic momentum slowed in the second quarter and that they will be open to reducing the fed funds rate soon, if needed. In our June U.S. Economic Update, we have one 25 basis point fed funds rate cut occurring in July, and one more in December of this year. We believe that a fed funds rate cut soon would be positive for the overall U.S. economy, and mildly positive for housing markets. However, this has been a long buying cycle for housing that has largely spent out any pent-up demand following the Great Recession.

Market Reaction: Stock indexes opened with gains. The yield on 10-year Treasury bonds is down to 2.06 percent. NYMEX crude oil is up to $53.48/barrel. Natural gas futures are down to $2.37/mmbtu.

For a PDF version of this report, please click here: May 2019 Housing Starts, June NAHB

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