Housing starts surge in May, but sales of existing homes were weak.
This week was light on economic data with the only major indicators coming from the housing sector. Housing starts saw a huge jump, but sales of existing homes were lackluster. Meanwhile, mortgage rates were little changed at close to 7%.
Residential construction
Preliminary data from the Census Bureau shows that housing starts in May jumped 21.7% m/m for the largest seasonally adjusted increase since October 2016 and the third largest on record. Starts were up 5.7% y/y and had not seen a positive y/y comparison since April 2022. The seasonally adjusted annual rate of 1.63 million units also is the highest since April 2022.
Although the surge suggests a potential bottoming out of the housing market, we cannot rely too heavily on a single month’s data. For one thing, residential construction data frequently sees significant revisions, and that was the case with March and April estimates, which were revised downward.
Starts were strong in May for both single-family homes and for units in multi-family buildings of five or more units. Single-family starts jumped 18.5%, and multi-family starts surged 28.1%. Single-family starts in May were still 4% below February 2020, but they were about 12% above the 2019 average. Multi-family starts in May were about 23% above February 2020 and about 60% above the 2019 average.
Permits authorized for future residential construction did not see the strength that starts did, but they rose 5.2% after declining in most months since the beginning of 2022. Permits were down 12.7% y/y but up 3.5% versus February 2020.
Housing completions fell 10.4% to their lowest level since October. With the sharp rise in housing starts, the number of homes under construction rose 0.7%, which is the largest increase since one of the same scope in October.
Sales of existing homes
Sales of existing homes in May were so weak that they moved in different directions depending on the type of home. Sales of all existing homes ticked up 0.2%, seasonally adjusted, from April, but sales of existing single-family homes declined 0.3%. Single-family home sales were down 20% y/y and 24.6% compared to February 2020.
The National Association of Realtors noted the recent disconnect between sales of existing homes and sales of new homes. Newly built homes are selling at a pace similar to pre-pandemic rates because of abundant inventory, but existing-home sales are constrained by the current supply of homes on the market being roughly half of that in 2019, NAR said. The Census Bureau will report sales of new homes for May next week.
The inventory of homes for sale relative to current sales rates moved higher for the third straight month to 3 months. While that supply is higher than it was during 2021 and much of 2022, it is well below what had been typical before the pandemic.
Unemployment benefits
The number of first-time claims for unemployment benefits was unchanged at 264,000, seasonally adjusted, in the latest week. That figure is the highest since late October 2021.
Meanwhile, the number of continuing claims for benefits fell by 13,000 in the latest week and have largely been on a downward trend since mid-April. The lack of an increase in ongoing claims that matches the recent increases in initial claims implies that displaced workers are finding other jobs or returning to work fairly quickly.
Diesel prices
After eight straight weeks of decline and 18 decreases in the past 19 weeks, the national average price of on-highway diesel increased 2.1 cents to $3.815 a gallon during the week ended June 19. Prices were higher in almost all regions, led by a 4.3-cent per gallon increase in the Gulf Coast.
The latest week represented the first anniversary of the all-time high diesel price of $5.81 a gallon. The increase in the latest week was just enough to keep the y/y difference below $2 a gallon, specifically $1.995 a gallon. However, average prices on the coasts were more than $2 lower y/y, led by California, where prices were more than $2.14 below the price during the same week last year.
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