This morning's Residential Construction report for May, held much better news than appeared at first glance even though that first glance was not bad either. Permitting and construction completions were particularly strong in the multi-family area--perhaps even disturbingly strong.
The Census Bureau and Department of Housing and Urban Development reported that permits for residential construction jumped 11.8 percent from April to a seasonally adjusted annual rate of 1,275,000 units. The analysts' consensus was for 1,105,000 units. April's permitting estimate was revised down slightly from 1,143,000 to 1,140,000 but even with the revision represented a 9.8 percent increase from March. The May permits were 25.4 percent higher than the May 2014 estimate of 1,017,000.
Single-family permits rose 2.6 percent from April's estimate of 666,000 units to 683,000 units, a 9.1 percent increase from a year earlier. Multifamily permits (for construction of buildings with 5 or more units) were issued at a rate of 557,000 in May, a 26.0 percent increase from April and up 53.9 percent from the previous May.
On a non-seasonally adjusted basis there were 113,300 permits issued during the month compared to 104,800 in April. Single family permits decreased slightly to 62,400 but multi-family permits rose by 10,000 to 47,900.
Housing starts were down by 11.1 percent from April to a seasonally adjusted annual rate of 1,036,000, 5.1 percent above the May 2014 rate of 986,000. The rate was also below consensus estimates of 1,090,000. However, the April number, initially reported at 1,135,000 units and a 20.2 percent increase from March was revised upward to 1,165,000, representing a 22.1 month-over-month gain.
Single family housing starts were at a rate of 680,000 units, down 5.4 percent from the lowered revision (from 733,000 units) of 719,000 April starts. Multifamily starts were estimated at 349,000 units compared to 428,000 in April.
On a non-seasonally adjusted basis there were 96,800 housing starts in May compared to 105,500 in April. There were 65,000 single family starts and 31,100 starts in multi-family buildings.
Housing units were completed at a seasonally adjusted annual rate of 1,034,000, an increase of 4.7 percent from April and 14.5 percent higher than a year earlier. The April estimate, which had already represented a 20.4 percent increase over March was revised upward slightly from 986,000 to 988,000.
Single family completions were at an estimated rate of 635,000, down 5.2 percent from April. Multi-family units were completed at a rate of 392,000, a 28.1 percent increase from April.
On a non-adjusted basis there were 84,900 units of housing completed in May; 52,800 single-family units and 31,600 multi-family units.
Bloomberg commented, "The housing starts & permits report points to solid strength for the housing sector. Forecasters will be revising their second-quarter GDP estimates higher following today's report, not to mention their estimates for Thursday's index of leading economic indicators where permits are one of the components."
At the end of May thee were an estimated 144,000 permits authorized for which construction had not yet begun and an estimated 863,000 housing units under construction. An estimated 367,000 of those incomplete units are single family and 484,000 are located in multi-family buildings.
The Northeast and Midwest accounted for all of the surge in permitting. The Northeast saw an increase of 77.7 percent from April and 165.8 percent year-over-year. The Midwest was up 16.3 percent and 3.0 percent for the two periods. Permitting in the South was down 3.6 percent from March but remained 4.9 percent higher than a year earlier while permitting slipped 1.9 percent in the West but was 14.9 percent higher year-over-year.
Starts were down in every region on a monthly basis. In the Northeast starts fell 26.3 percent following a strong gain of 85.9 percent in March but were up 58.0 percent compared to a year earlier. The Midwest saw a month-over-month decrease of 10.2 percent and a yearly loss of 9.7 percent. Starts in the South were down 5.0 percent from April and 8.7 percent from the previous May and in the West starts decreased by 12.5 percent for the month but were up 32.5 percent from May 2014.
Completions rose 39.3 percent in the Northeast and were up 38.1 percent form a year earlier. In the Midwest there was a monthly drop of 14.0 percent and completions were unchanged from the previous May. Completions rose 4.5 percent in the South and were 16.5 percent higher than in May 2014 and in the West completions were 1.8 percent and 7.9 percent higher than the two earlier periods.