Blame It on the Rain: Housing Starts Were Way Down in May—but Permits Hit an 8-Year Record

Construction on new homes hit a bit of a speed bump in May, according to a report on Tuesday from the Commerce Department, but that’s no indicator of a slowdown for the year.


In fact, even though groundbreakings fell by 11% last month (after climbing to a seven-year high in April!), homebuilders are preparing for a busy summer with heavy demand for new homes.

Why? Housing permits were up 12% over April to an annual rate of 1.275 million, the highest since August 2007. (Permits for apartment construction spiked, while permits for single-family homes rose modestly.)

So what gives? The slowdown, quite simply, comes down to May’s record rainfall across the country. Nationwide, the average precipitation was the highest recorded in 121 years, making it hard to begin construction on new homes. Because permits aren’t affected by the weather, they’re a much better gauge than groundbreakings to assess housing growth.
As Milli Vanilli once crooned: “Blame it on the rain“. You can easily pull a permit in the rain, but it’s a bit harder to break ground and start construction.

In addition to the month-over-month numbers, permits are also up 25% year over year. Job growth is picking up, and Americans are starting to see higher wages, putting them in prime position to get in the market for home buying. (If you’re puzzled about the apartment growth rising over single-family houses, consider this: As rents rise, apartment construction is looking a lot more attractive to builders.)

These are all indicators of a healthier housing market—in fact, we’re on track for the best year in residential real estate since 2006.

A word of advice from Smoke as we head into a competitive home market this summer: Considering an option to sign a contract with a builder to build a to-be-built home is a great way to avoid bidding wars on existing homes in tight supply markets.

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