Consistent with National Association of Home Builders’ (NAHB) forecast, home building data are showing signs of leading an emerging economic rebound. While risks to the outlook remain, particularly in the form of local, rising virus spread and ongoing layoffs, the recession appears to have taken a short and sharp downturn, according to Chief Economist Robert Dietz.
In May, single-family starts held at a flat annual rate of 675,000; however, single-family permits expanded by 12%. Multifamily permits for properties of five units or more are down more than 10% thus far in 2020, as concerns within the rental market continue due to elevated unemployment levels.
For home sales, new single-family home contracts jumped in May (676,000), posting a 13% year-over-year gain after a significant downward revision for the April estimate (revised to 580,000, marking a 25% decline from the pre-recession peak in January). Inventory fell to a sales-adjusted level of a 5.6-month supply. Levels below a six-month supply generally support growth for new home building.
The increase in builder confidence, permits and sales all suggest construction gains are on the horizon. However, a medium-term concern for the housing market is whether the current strength in demand is an unlocking of deferred demand from early spring, or reflects the emerging trend for home buying as a growing number of prospective buyers are looking in small metro and exurban locations.