Reports of more new homes entering the pipeline in May than any other month since the end of the Great Recession sound rosy, but housing starts in the West and every part of the country except the Midwest, are down. 

“New-home construction activity soared to its highest level in over a decade, which is fantastic news as more housing inventory will be available as the year proceeds,” says Lawrence Yun, chief economist of the National Association of REALTORS®.

While the combined single-family and multifamily housing starts rising 62.2% in the Midwest tilted the overall average to the plus side, housing starts fell 0.9% in the South, by 4.1% in the West, and by 15% in the Northeast.

Total housing starts increased 5% in May to a seasonally adjusted annual rate pace of 1.35 million units, the Commerce Department reported in June. That marks the highest housing starts since July 2007.

Broken out, single-family starts rose 3.9% to 939,000 units in May—the second-highest reading since the Great Recession. The multifamily sector increased 7.5% to 414,000 units. Single-family and multifamily production are now 9.8% and 13.6% higher, respectively, than a year ago.

Yun said that, “construction and real estate industry jobs are being created and boosting the economy. [As a result,] GDP growth of 4% to 5% is possible in the second quarter.”

“The Midwest region experienced the biggest gain and hence the region will remain more affordable,” Yun notes. “The more unaffordable West region will continue to experience an intense housing shortage, as both housing permits and housing starts fell in that region. For the country as a whole, an additional 20% to 25% gain in home construction is needed to make the market more balanced.”

Housing starts will likely hit a snag in the coming weeks. Permits—a gauge of future activity—fell 4.6% in May to 1.3 million units. The biggest drop in permits was in the multifamily sector, which saw permits tumble 8.7% to 457,000. Single-family permits dropped 2.2% to 844,000.

“Ongoing job creation, positive demographics, and tight existing home inventory should spur more single-family production in the months ahead,” says Robert Dietz, the National Association of Home Builders’ chief economist. “However, 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.”

Source: REALTOR Magazine