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U.S. home starts rose 3.5% in May and building permits climbed 8.7%

06/16/2011 by Alex Carrick, RCD Canadian Chief Economist

It may be painfully slow, but it is transpiring. The U.S. economy is lumbering and lurching ahead.

The weak jobs market has been a major drag, but gradual improvement is taking place. The initial jobless claims figure has returned to around the 400,000 level. The latest number, for the week ending June 11, was 414,000. That was a decline of 16,000 versus the previous week’s 430,000.

In February and March of this year, the number of first-time unemployment insurance seekers fell below 400,000 on a fairly consistent basis. But then the number shot up again in April, to as high as 478,000 at the end of that month.

Over the last several weeks, the figure has been improving again, holding out the prospect of more significant job gains in future monthly labor reports. An initial jobless claims number of about 400,000 traditionally points to an employment gain of 100,000-plus on a monthly basis.

A prime reason employment growth has been so restrained can be found in moribund new homes construction. On that score, the news has also picked up slightly. U.S. housing starts in May were +3.5% versus April, rising to 560,000 units seasonally adjusted and annualized.

That’s still a depressingly low number. But it is moving in the right direction. Furthermore, March and April starts levels were revised upward by 8,000 and 18,000 units respectively.

Apparently, there’s a tiny bit more activity taking place on job sites than was first measured.

Also, the joint press release of the Census Bureau and Department of Housing and Urban Development contains residential building permits information for May and they increased more robustly, +8.7% month to month. Building permits are an advance indicator for starts by a couple of months. On a year-over-year basis, permits were +5.2% while starts were -3.4%.

Through May, all four major geographic regions were down to similar degrees (-5% to -13%) on a year-to-date basis. However, in the individual month of May, the West stood out for its better percentage changes – +18.1% month to month and +20.2% year over year.

The South was the only other region to record a gain (+1.5%) month to month in May, but it was down (-6.2%) versus year-ago May.

A major dichotomy has developed between the single-family market and multiples. On a year-to-date basis, singles were -20.2% versus the same January to May period last year. But multiples were up nearly 50%.

The multiples market is being driven by young people. While they continue to live at home or in a relative or friend’s basement, they represent so-called “shadow” demand. However, they are the ones with the acquired high-tech skills to secure the first wave of new jobs.

Their new jobs and accompanying incomes are enabling young adults to set up their first homes outside the nest. As a consequence, rental rates are being raised to historically high ratios versus ownership costs.

Of course, over the longer term, this will be one means by which the overall market will self-correct and the demand for single-family ownership will improve again.

Meanwhile in Canada, the housing market continues to do okay, with some regional pockets that are thriving. Canadian home starts in May were 184,000 units seasonally adjusted and annualized. A monthly figure between 175,000 and 200,000 units is a “sweet spot” for Canadian homebuilders.

That’s because, based on population growth and family formations, the annual “norm” for home starts in this country should be in the 175,000-unit range.

As for the existing homes market, May resales were stable relative to April according to the Canadian Real Estate Association (CREA).

The average resale home price in Canada was +8.6% year over year in May. Vancouver and Toronto made major contributions to the price gain.

If pricey neighborhoods in Vancouver are eliminated from the calculation, the increase drops to +5.6%. If Toronto’s broad-based market gains are also ignored, the percentage change falls further to +3.7%.

The year-over-year increase in home prices in Vancouver is +26%. No other city in the country comes close to Vancouver ($832,000) for its average existing-home resale price. Victoria is in second spot followed by Toronto, but both are more than a third lower.

The average price of an existing abode recently sold on the market in Vancouver is more than double (+120%) the national average. No wonder the Bank of Canada is warning about the development of a possible price bubble in that metropolis.

U.S. monthly housing starts
U.S. monthly housing starts
May 2010 = 0.622 million units;
May 2011 = 0.570 million units (-8.5%).
U.S. Annual Starts:
2006 = 1.801 million units (-12.9%);
2007 = 1.355 million units (-24.8%);
2008 = 0.906 million units (-33.1%);
2009 = 0.555 million units (-38.8%);
2009 = 0.587 million units (+5.9%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.
U.S. and Canada: monthly housing starts
(seasonally adjusted at annual rates)
U.S. and Canada: monthly housing starts
Data source: U.S. Census Bureau (Department of Commerce) and Canada Mortgage and Housing Corp. (CMHC).
Chart: Reed Construction Data - CanaData.
U.S. regional housing starts
U.S. northeast housing starts   
 
U.S. midwest housing starts     
U.S. northeast housing starts   U.S. midwest housing starts
U.S. northeast annual starts:
2009 = 61,800 units;
2010 = 71,600 units (+15.9%).
 
U.S. midwest annual starts:
2009 = 97,100 units;
2010 = 97,900 units (+0.8%).
Jan-May average 2010 = 72,600 units;
Jan-May average 2010 = 65,600 units (-9.6%).
 
Jan-May average 2010 = 103,800 units;
Jan-May average 2010 = 90,200 units (-13.1%).
     
U.S. south housing starts       
 
U.S. west housing starts        
U.S. south housing starts   U.S. west housing starts
U.S. south annual starts:
2009 = 278,200 units;
2010 = 297,500 units (+6.9%).
 
U.S. west annual starts:
2009 = 116,800 units;
2010 = 119,900 units (+2.7%).
Jan-May average 2011 = 320,600 units;
Jan-May average 2011 = 298,200 units (-7.0%).
  Jan-May average 2011 = 125,200 units;
Jan-May average 2011 = 115,600 units (-7.7%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.

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