Last week, the Commerce Department reported that housing starts hit a 5-month low, dropping 10% to a seasonally-adjusted annual rate (SAAR) of 593,000. Analysts were expecting a number of around 650,000 housing starts.
Along with this, new builder permits dropped 5.9% to a 574,000 pace in May, the lowest in a year signaling builders aren’t able to get financing or aren’t prepared to take the risk of having vacant inventory.
Even worse, ground-breaking on single family homes dropped more than 17% to 468,000 units. Meanwhile multi-family starts zoomed 33% to a 125,000-unit annual pace.
For investors, the news isn’t all that bad. Fewer housing starts means the market is absorbing existing inventory. Inventory that badly needs to be absorbed. It’s estimated that nearly 1.6million homes need to be built each year to keep up with demand, far above the pace that’s occurring today.
I anticipate we won’t see much in the way of recovery for builders this year and well into next year. Look instead to see continued demand for existing housing stock and strengthening demand for rental housing. This is in part due to delays in household formation and inability for people to get financing.
- Ryan Hinricher, Housing Analyst
