So my first thought was: there’s got to be something wrong with this number. A 17 percent surge in housing starts didn’t make a whole lot of sense to me at first, but after talking to my minions I’m now getting the picture.
First of all, the biggest part of the gain was in multi-family, up 61.7 percent month to month, but that’s after falling 49 percent in April. Patrick Newport, an economist at HIS Global Insight, says the multi-family market is still in a “deep slump,” despite the monthly jump. “Permits, which better gauge underlying conditions, fell 8.3 percent, the 11th consecutive monthly decline, to a record low of 110,000 units 9annual rate,” says Newport. “The recent sharp decline in this market is related to financing. Some builders are overwhelmed with debt. Others cannot find funding to finance projects with positive net present values.”
As for single family, Dan Oppenheim over at Credit Suisse tells me that “the bit of stabilization earlier this year (the end of buyer paralysis after the end of last year) led a few builders to get their plans set for more.”
But analyst Ivy Zelman gave me a huge nugget: 50 percent of sales in May were on spec. She says we’re seeing a lot of spec homes now because, “today’s consumer wants to touch and feel the house.” The positives are that cancellations are down, sales are better and there’s less negative pricing, although discounts are still prevalent. “The patient was without a pulse in the fourth quarter,” Zelman notes, “and now the patient’s in ICU.”