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New housing construction posted its largest increase since 2016 during May, exceeding all estimates.
According to data released Tuesday by the U.S. Census Bureau, housing starts were at a seasonally adjusted rate of 1,631,000 for May — a 21.7 percent jump from April and 5.7 percent higher than the levels recorded in May 2022.
Housing starts in May were at their highest levels seen in more than a year: The 21.7 percent surge was the highest recorded since 2016 and the 291,000-unit increase was the biggest since 1990, according to census data as homebuilders responded to an increase in sales of new homes while homebuyers contend with low-existing home inventory.
Zillow Senior Economist Nicole Bachaud | Zillow
“Low inventory of existing homes available for sale has pushed many buyers who can afford to stay shopping to look towards new construction, and homebuilders are taking notice,” Zillow Senior Economist Nicole Bachaud said in a statement. “With incentives sweetening the deal for buyers, new home sales have been rising amid falling existing home sales — raising homebuilder confidence from the lows seen in the last year.”
Data released Monday by the National Association of Home Builders found that builder confidence rose 5 points during June to a measure of 55 — the first positive reading on the index in 11 months.
“Mirroring rising builder sentiment, single-family permits and starts increased in May as builders boosted production to meet unmet demand,” said Alicia Huey, chairman of the NAHB. “Despite elevated interest rates that make the cost of housing more expensive, the lack of existing home inventory in most markets is leading to increased demand for new construction.”
New building permits also posted a monthly increase of 5.2 percent in May to an adjusted annual rate of 1,491,000 but were 12.7 percent below the May 2022 rate of 1,708,000.
Housing completions jumped 9.5 percent month over month in May to a seasonally adjusted annual rate of 1,518,000 — 5 percent above the May 2022 rate.
The growth in housing construction was welcomed by the inventory-strapped housing market, which has been stuck in a stalemate as would-be sellers stay put instead of listing their homes and losing their lower mortgage rates.
The Federal Reserve declined to raise interest rates during its June meeting but left the door open for future hikes, and Federal Reserve Chair Jerome Powell declared rate cuts are “years” away.
