Why Drove Housing Starts Higher in May?

Housing starts increased in May

The improving conditions in the housing industry were evident again with the housing starts bouncing back in May. As per the June report, housing starts for May were reported to have increased by 5.0% in May after a 1.8% increase in March and a 7% decrease in February. The US Census Bureau and Department of Housing and Urban Development have reported housing starts for May at 1.35 million, a strong rebound from the April reading of 1.29 million. The increase in housing starts was fueled by the 11.3% increase in multi-family housing starts, while the single-family starts increased by 3.9%. Housing market (PKB) starts are generally volatile on a monthly basis, but the long-term trend remains intact.

Why Drove Housing Starts Higher in May?

Regional trends in the housing market

The increase in housing starts in May was because of the sharp increase in starts in the Midwest region, while the remaining three regions reported a decline in housing starts. Among the four regions, housing starts were reported to have increased in the Midwest with a total gain of 62.2% starts as compared to April and an impressive increase of 44.4% in single-family starts. The Northeast, South, and West were reported to have witnessed a decline in starts by 15.0%, 0.9%, and 4.1%, respectively.

Implications for homebuilders

The housing starts for May were strong when compared to the May numbers from the previous years. The year-over-year increase in starts was 10.2%. Though homebuilders like Lennar (LEN) and D.R. Horton (DHI) have been struggling in the recent weeks, most of the decline was because of the market decline related to trade tensions. Increasing rates are acceptable to consumers if wages increase and unemployment remains low. The SPDR S&P Homebuilders (XHB) ETF, which has holdings in DR Horton, PulteGroup, and Lennar, and the DJ US Home Construction ETF (ITB) have seen year-to-date losses of 11.1% and 14.2%, respectively. In the next part of this series, we’ll analyze building permit data from May.