In the News – Permits on Decline Are a Bad Sign

In the News – Permits on Decline Are a Bad Sign

May’s report on starts and permits point to a troubling trend in declining permits that does not bode well for seeing our housing shortages addressed in the medium- to long-term.

The latest release of new construction data from the Commerce Department was slightly better than expected but represents a largely unchanged pace of new construction from what was reported in April.

The seasonally adjusted rate of permits increased 0.7 percent in May to 1.138 million from April’s 1.130, which was revised up by 14,000 permits.

Analysts had been expecting permits to reach a pace of 1.140 million, so the May number was very close but slightly below expectations. However, as is often the case with the monthly figures, the increase was not statistically significant.

The pace of permitting activity declined in all regions but the West.

Single-family permitting decreased, but multi-family increased. However, on a year-over-year basis single-family permits were up 5 percent, but multi-family permits were down 28 percent.

Starts were expected to see a decline of 2 percent, reflecting a slight pull-back from the increase in April. The total seasonally adjusted rate came in essentially flat with a decrease of 0.3 percent over the revised April pace of 1.167 million.

The relative standard error percentage on the starts data revealed that the decrease was not statistically significant.

Most of the monthly changes in underlying starts numbers (by type and by region) were also not statistically significant; the lone exception was the total decrease in starts in the Northeast, which was statistically significant.

March and April starts were revised for a net increase of 9,000 more starts than were originally reported on a seasonally adjusted basis.

May can be an erratic month for changes in starts over April in the non-seasonally adjusted number as it is often dependent on how many starts occurred in April when weather typically improves to enable more construction on site. This year’s increase of 2 percent is typical of a May following a strong April.

Collectively these May readings on new construction show little change from what we have been observing already this spring. Total permits are down on a year-over-year basis as a result of a substantial decline in multi-family construction. Single-family is continuing to show some gains but the monthly pattern is erratic.

Starts on the other hand are still showing year-over-year gains in total and for both single-family and multi-family.

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