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First Cut: Starts of homes in May mainly for mutli-unit sector, but permits suggest single-family home starts are not far behind

Housing starts were up 4.3% in May to 974,000 units (SAAR) after 934,000 in April. Starts remained only about ¾ of where they were early in 2020 before the arrival of the COVID-19 pandemic and measures to combat its spread resulted in widespread unemployment and limited personal interactions. Compared to a year ago, the level was down 23.2% percent. However, the mild pick up in starts could build some momentum after restrictions on movement were eased late in May and exceptionally low mortgage rates bring continue to buyers into the market.

Starts eked out a small 0.1% gain for single-family units to 675,000 in May. However, multi-unit starts were up 16.9%, perhaps reflecting the availability of credit to restart some projects stalled in March and April when financial markets had problems keeping the flow of liquidity going.

By region, starts were up 12.8% in the Northeast and jumped 69.8% in the West, probably due to some pent-up demand in areas that were among the first to experience quarantines during the pandemic. Starts were down 16.0% in the South and off 1.5% in the Midwest in areas that were slower to adopt social distancing measures earlier.

Permits issued in May increased 14.4% to 1.220 million units (SAAR) after falling to 1.066 million in April. The resurgence in permits issued is probably due to low mortgage rates where those who can qualify for a mortgage are acting to lock in the lowest possible rate. Permits were down 8.8% compared to a year earlier.

Permits were up 11.9% for single-family units to 745,000 in May. The pace of permitting hasn’t recovered to pre-pandemic levels but it is on the upswing and will likely continue as long as mortgage rates remain near historic lows. Permits for multi-unit homes were up 24.2% in May to 41,000 and are now not far below the recent peak of 46,000 in March. Multi-unit permits were up 10.8% compared to a year earlier.

Permits were up in all four regions. The Northeast jumped 82.0% to 111,000, while the Midwest was up 18.4%, the West was up 12.3%, and the South was up 7.7%. Some of this is the result of easing in social distancing guidelines which allowed consumers greater freedom to shop for land and homes.

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