- Miller Samuel Real Estate Appraisers & Consultants - https://www.millersamuel.com -

The Blip: Housing Starts Up, Building Permitting

The Commerce Department released their new-home construction stats [1] which showed a 5% increase in May over April, but starts are still 3.8% below last year. Building permits were 8.5% below last year’s pace [2].

Total housing starts rebounded from a 13-month low to increase 5.0 percent in May as builders worked down a backlog of unfilled orders under unusually good weather conditions. Issuance of new building permits fell by 2.1 percent, continuing the moderate downslide from the peak last September.

Download the press release [pdf] [3]
View regional charts [macroblog] [4].

There is some concern that too much good news will prompt the Fed to take stronger inflationary measures [WaPo] [5] than it has in the past.

However, this news didn’t strike me as particularly good. Is it really inflationary to have housing starts rise as sales are slowing and inventory is rising? That doesn’t make a lot of sense to me.

I think the rise in new home construction is really blip and not the beginning of a trend [NYT] [6].

Economists had expected the rate of construction on new homes to increase only marginally from April to May, according to a survey by Bloomberg News. So the latest figures were somewhat surprisingly strong.

“After three months of large single-digit declines, a rebound was to be expected,” Goldman Sachs economists wrote in a research report today. “The one we got was larger than expected, but certainly not enough to overturn the idea that housing is in a contraction.”

If the Fed interprets this to mean the economy is inflationary, then housing will suffer further with more rate increases. This rise really shows that more housing is being produced during a period of rising inventory and falling demand.

In other words, this isn’t a sign of anything positive.