Builders have quickened the pace of constructing single-family homes in May while the housing shortage persists.
New home construction in the US surged by 22% in May as developers ramp up single-family home building to meet strong demand from buyers. Home construction starts climbed to an annual rate of 1.63 million last month from 1.34 million in April – the government reported on Tuesday. This is the number of homes that would be built in a year if construction continued at the same pace as in May. Economists had expected a slight drop of around 1%. These data are seasonally adjusted.
This marks the second consecutive month where construction starts have risen. The pace of construction was the highest since April of the previous year when the building of 2 million homes began. The spring construction boom is primarily in our Midwest region.
Both single-family and multifamily home construction increased in May. The interest of potential homebuyers is creating strong demand for new homes. These buyers are still grappling with a lack of options in the resale market. Building permits, an indicator of future construction, rose by 5% to a pace of 1.5 million.
As the weather warmed, the pace of building significantly accelerated. The pace of single-family home construction increased by 18.5% in May, while apartment buildings by 28%. Builders are most active in the Midwest region, where home construction starts rose by 67% compared to the previous month. The Midwest also leads the country in terms of single-family home construction.
Permits for single-family home construction rose by 5% in May, and permits for buildings with five or more floors by 8%. Home construction starts rose year-over-year for the first time in almost a year. The annual dynamic of the total number of home construction starts rose by 6% from May of the previous year.
Overall Picture: New construction is a bright spot on a challenging real estate market. For buyers who opt for mortgages with 6% interest, there are few options in the resale market, which increases demand for new homes. Indeed, demand is so strong that developers are cutting back on sales incentives, such as price discounts, the National Association of Home Builders reported on Monday. Builders also reported that they are optimistic about the real estate market for the first time in almost a year.
What do they say in the real estate business? To say we didn’t expect this would be far from the truth, as May’s housing data surprised us.
Without a doubt, this is an exaggerated representation of reality and a reminder that housing start data is one of the most volatile and random of the major economic indicators. The real estate sector appears to be recovering quite quickly after a historic shock regarding the limited availability of sales offers last year, despite the fact that 30-year mortgage rates have more than doubled compared to the previous year.