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New and Completed Construction Up, Permits Down

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Home builders started and completed construction on housing units last month at an improved rate. But housing permit activity slowed and could weaken further due to tariffs.

In places where permits are issued, there were 124,900 new privately owned units, including single-family and multifamily units, authorized during May.

Including last month’s activity, there have been
550,600 housing units authorized from Jan. 1, 2018, through the end of May. The year-to-date one-unit count came to 363,700.

Tuesday’s report was jointly released by the Census Bureau and the Department of Housing and Urban Development.

Using seasonal adjustments, the annual rate of permits was 1.301 million, retreating from the upwardly revised 1.364 million in April but stronger than an upwardly revised 1.205 million in May 2017.

One-unit permits had a seasonally adjusted annual rate of 844,000 last month, down 2 percent from the preceding month. Multifamily permits fell 9 percent to 421,000.

National Association of Home Builders Chief Economist Robert Dietz explained in a written statement that “the softening of single-family permits is consistent with our reports showing that builders are concerned over mounting construction costs, including the highly elevated prices of softwood lumber.”

With a 14 percent decline to an annual rate of 626,000, the South suffered most. A 5 percent drop left the rate at 331,000 in the West.

But the rate of permits in the Midwest was 209,000, up 7 percent, while it soared 42 percent to 135,000 in the Northeast.

As of May 31, 2018, a seasonally adjusted 159,000 U.S. units were authorized but not started.

Home builders broke ground on new housing units at a seasonally adjusted annual rate of 1.350 million, up 5 percent from the downwardly revised level a month earlier and more than a fifth higher than the upwardly revised rate for a year earlier.

The one-unit annual rate of new construction was up 4 percent to 936,000, and the multifamily rate jumped 11 percent to 404,000.

The month-over-month improvement was above expectations, according to LendingTree Chief Economist
Tendayi Kapfidze.

“LendingTree prefers the three-month average to balance timeliness with information value,” Kapfidze explained in a written statement. “The three-month average of single-family starts was 904,000, breaking above 900,000 for the first time in seven months, confirming the positive momentum.”

NAHB’s Dietz predicted increased single-family production during the coming months thanks to ongoing
job creation, positive demographics and tight existing home inventory.

There were wide variations regionally, with construction starts soaring 62 percent in the Midwest to an annual rate of 266,000, while starts tumbled in the Northeast by 15 percent to a rate of 102,000. A 1 percent dip left the South’s rate at 653,000, and a 4 percent drop had the West’s rate at 329,000.

A seasonally adjusted 1.127 million housing units were under construction as May ended.

Builders completed construction on 109,000 housing units last month, bringing the May 31 year-to-date total to 471,900. The one-unit year-to-date number is 324,700.

May 2018’s seasonally adjusted annual rate of completed construction came to 1.291 million, up from a upwardly revised 1.267 million the prior month and an upwardly revised 1.169 million a year prior.

Completed construction jumped 14 percent in the South to an annual rate of 706,000, while the West was up 3 percent to 314,000.

But in the Midwest, the rate fell 12 percent to 172,000, and the Northeast tumbled a third to 389,000.

LendingTree’s Kapfidze predicted that an escalation in the tariff war with China could impair housing-related spending.

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