The U.S. Census Bureau and HUD jointly announced today in a press release new residential construction data for June 2015, finding that single-family building permits rose slightly, while housing starts and housing completions both declined.
“An increasing level of new construction is the primary way that the housing market will find balance in this surging demand, but tight supply environment,” said Jonathan Smoke, chief economist at Realtor.com. “Both home prices and rents are rising at well above normal levels, and that market signal is exactly what builders and developers need to find confidence to pull permits and start new construction.”
According to the report, single-family building permit authorizations in June were at a rate of 687,000, an increase of 0.9 percent above the revised May figure of 681,000. Authorizations of units in buildings with five units or more were at a rate of 621,000 in June.
“Builders are more confident as a result of seeing more traffic and sales,” Smoke said. “Indeed, the last time that NAHB’s housing market index, the leading measure of homebuilder sentiment, was higher than yesterday’s reported number for July was in November 2005 at the height of the housing bubble. Similarly, the last time permits and starts were this high was in 2007 when builders were running for the exits.”
Single-family housing starts dropped 0.9 percent to 685,000 from the May figure of 691,000, the Bureau and HUD reported. The June rate for units in buildings with five units or more was 476,000.
“Starts were up 10 percent to an annual pace of 1.174 million in June,” Smoke said. “Single family decreased 1 percent while multifamily increased 29 percent. I have more faith in the totals than the breakdown of single family and multifamily. The single family starts numbers have been revised up this spring and I expect that this June number will be revised as well.”
Single-family housing completions in June decreased by 0.3 percent to a rate of 647,000 from the revised May rate of 649,000, the data found. The June rate for units in buildings with five units or more was 317,000.
“Given strong demand and tight supply, we expect permits and starts to continue to post gains throughout the year following continued strength in traffic and sales,” Smoke said. “We expect single family starts for 2015 to end above 710,000, which would mean a stronger second half of the year. Total starts this year should end close to 1.14 million, an increase of 14 percent over 2014.”
Trulia’s chief economist, Selma Hepp, noted that while housing starts and permits have been volatile, there has been a strong rebound since the end of the winter months which suggests 2015 may be the best year in housing since the recovery began.
“Single-family starts continued to move sideways and are still at less than a half of their historical average,” Hepp said. “Large increase in today’s readings will help ease tight inventories of new homes, and home price pressures. However, completions still have a lot of room to catch up with starts indicating there will be more inventory coming on, but today’s strong increase of 22 percent suggest completions are coming on healthy.”
Hepp also mentioned that millennials will keep demand constant in the future with strong job growth and increased household formation. Household formation may be changing in favor of homeownership as millennials finally start forming their own families and having children.
“High confidence among builders bode well for construction going forward,” Hepp said. “Other construction indicators, including construction spending, new home market, suggest we may be on the path to the best year in housing recovery.”