May Housing Data: The Sharp Upturn and Maintaining Growth

By at 21 June, 2023, 8:13 pm

by Raymond J. Keating –

The U.S. economy overwhelmingly is a small business economy. And even given that reality, it’s hard to think of a sector that is more about small businesses than residential housing construction.

Based on the latest Census Bureau data, in the residential building construction industry, 92.3 percent of employer firms have fewer than 10 employees, 97.3 percent have fewer than 20 workers, and 99.7 percent fewer than 100 employees.

Therefore, when we get reads on the housing sector, it’s very much about small businesses.

It was noted in the Census Bureau’s latest “Monthly New Residential Construction” report that housing starts (seasonally adjusted annual rate) jumped by 21.7 percent in May compared to April. That leap put the May 2023 level of 1.631 million at 5.7 percent higher than the May 2022 level of 1.543 million.

As noted in the following chart, the May 2023 gain broke a downward trend that began in May of last year. And the decline from May 2022 to April 2023 came after a period of strong recovery and growth during and after the pandemic.

Source: Federal Reserve Bank of St. Louis, FRED

Meanwhile, housing permits – a measure or estimate of future starts – came in 5.2 percent higher in May 2023 compared to April. However, permits were still down by 12.7 percent below the May 2022 level.

This is a positive housing report, and it lines up with the National Association of Home Builders’ Housing Market Index survey released on June 19. It was stated in that report:

“Solid demand, a lack of existing inventory and improving supply chain efficiency helped shift builder confidence into positive territory for the first time in 11 months. Builder confidence in the market for newly built single-family homes in June rose five points to 55, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today. This marks the sixth straight month that builder confidence has increased and is the first time that sentiment levels have surpassed the midpoint of 50 since July 2022.”

Of course, this all is rather amazing given the Fed’s emphasis on interest rate increases in an attempt to break inflation by breaking much of the economy, including housing. NAHB Chief Economist Robert Dietz pointed out, “The Federal Reserve nearing the end of its tightening cycle is also good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”

Let’s hope that Dietz is right, for the sake of small businesses in housing and across the rest of the economy.

Indeed, Dietz offered some additional wisdom: “Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing – for-sale, for-rent, multifamily and single-family. By addressing supply chain issues, the skilled labor shortage, and reducing or eliminating inefficient regulatory policies such as exclusionary zoning, policymakers can play an important and much-needed role in the fight against inflation.”

That’s absolutely correct. And once more, the measures that Dietz emphasizes – that is, the need to free up supply chains, dealing constructively with labor shortages, and deregulation – apply not just to housing but across the economy.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.


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