For X.U. Economics blog readers the drop in housing starts does not come as a surprise but is still discouraging. Yesterday we looked at the Housing Market Index which warned us that this would happen. Housing Starts and Building Permits data essentially just records the number of new homes being built and permits being issued for future construction.
When browsing over the data it is important to note the performance of "single-family housing start" as opposed to "multi-family starts." This is because single-family home building is based on consumer confidence and demand, while construction for multi-unit apartments can be subject to speculation and changes in the tax code. The most recent release indicates only 468,000 single-family housing starts in May as compared to the slight pick-up of 565,000 found in April's release ( Current New Residential Construction Press Release).
One possible explanation is the disappearance of the home-buyers tax credit and with it a vanishing act by demand. Another reasonable explanation is that growing families are looking to rent as opposed to purchasing a new home- especially with job stability being a hard thing to count on. Whatever the reason may be the drop in single family housing starts is not a good sign for those betting on a V-shaped recovery.
A look at Building Permits:
We have to keep close tabs on building permits because they are the precursor to housing starts. Although the issuance of a housing permit does not necessarily result in new construction, as you can see the two series do move together over time.
For other reactions to the housing start data.