New Construction Permitting Slows in June while Completions Pick Up

What happened

New residential construction presented some mixed signals in June, with permits falling, completions rising slightly, and starts taking a big jump (but driven entirely by the multifamily segment). The number of new housing units permitted for construction fell 3.0% month over month and 2.3% year over year, while the number of new housing units completed grew 3.3% month over month and 1.5% year over year, and the number of new housing units that started construction grew 19.0% month over month and 3.5% year over year. The big upswing in total starts masks weakness in the single family segment, which was actually down 0.2% month over month and down 3.2% year over year. The starts improvement is driven entirely by a massive month-to-month reversal in projects of 5 units or more, which rose 76.3% month over month and 19.3% year over year. The revised multifamily starts figure from May, a seasonally adjusted annual pace of 291,000 units, looks like an outlier on the low side and the June result, a seasonally adjusted annual pace of 513,000, looks like an outlier on the high side. It’s unclear what caused this discontinuity in the series, but it may take several months of additional data to establish a true current level for multifamily construction starts.

Where it happened

Regionally, the gains in completions were concentrated in the Northeast and the South, but characterized by the delivery of different kinds of inventory. The Northeast saw completions rise 18.7% year over year, but single family home completions actually fell by 2.9%, suggesting that multifamily projects are primarily what’s hitting the market there. The South saw completions rise by 5.0% year over year, but single family completions grew by 15.8%, suggesting a slowdown in multifamily projects. The strength of the South’s single family segment is notable because sales of new single family homes in that region have been in decline. Sales have been stronger in the Northeast and Midwest, where inventory is still constrained and new homes are needed the most, but completions of single family homes in both these regions fell on a year over year basis.

On a more forward-looking basis, the permitting slowdown is slightly more pronounced in the multifamily segment (except in the Northeast, where multifamily permitting drove the total figures positive even with negative single family permitting growth). The West saw single family permits pick up by 3.4% both month over month and year over year, but otherwise there are few bright spots in the permitting breakout. Builder confidence is low, as costs of construction rise and demand for newly built homes has proven softer than hoped for in recent years, and builders are not eager to launch new projects under these conditions.

What does this mean for homebuyers, sellers, homeowners, and the housing market

For buyers, right now is still a great time to buy a new construction home, especially in Southern markets where the inventory continues to grow and builders are offering price cuts and incentives to boost sales. In the long run, though, these tepid permitting readouts do not inspire confidence in the country’s ability to close the 4 million home supply gap. Without meaningful acceleration to homebuilding, the high prices and limited options that plague buyers in many markets today will continue.