A surprise surge in US housing starts boosts confidence in the wood products market

Despite consistently high 30-year mortgage rates, builder confidence has grown through the year

A surge in US housing starts last month caught traders and analysts by surprise and injected a fresh burst of optimism into wood products markets.

Total starts in May climbed 21.7% on a monthly basis to a seasonally adjusted annual rate (SAAR) of 1.631 million units. The jump was the largest by percentage since 2016, and the largest month-over-month increase on a per-unit basis since 1990.

Gains were spread across sectors, with single-family starts climbing 18.5% to 997,000 units, and multifamily starts jumping 27.1% to 634,000 units. While single-family construction remained below the year-ago level, multifamily starts were 33.2% higher than May 2022.

“Part of what is supporting the new (construction) side of the market, despite unfavorable mortgage rates, is still the real lack of existing inventory,” said Jennifer Coskren, Fastmarkets senior economist.

Existing home inventories rose modestly in April according to the National Association of Realtors, but remained well below the pre-pandemic levels of 2019 and early 2020.

Housing Market Index turns positive

Despite 30-year mortgage rates hovering above 6.25% since February, as reported by Freddie Mac, builder confidence in the single-family construction sector has grown through the year. The National Association of Home Builders reported the Housing Market Index turning positive for the first time in 11 months this week, rising five points in June to 55. That’s the sixth straight monthly gain in builder confidence.

“The May housing starts data and our latest builder confidence survey both point to a bottom forming for single-family residential construction earlier this year,” said NAHB Chief Economist Robert Dietz.

On a regional basis, starts increased both month over month and year over year in all regions except the Northeast, where they fell 18.7% from April and 21.9% from May 2022. Gains were most notable in the Midwest, with a 66.9% surge from April and 24.2% jump from a year ago.

Housing permits also increased in May, up 5.2% month over month to 1.491 million units (SAAR). Permits have fallen 12.7% from the year-ago level.

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