Construction declined in May

New construction dropped 2.1% in May from a month earlier, and was 24.2% lower than last year. Permits were up 3%, but that came after a 7.1% drop in April, so the rebound is not that significant

David Seiders, chief economist for the National Association of Home Builders, predicted that new construction will decline by 22% this year. “Improvements in housing starts”, he said, will come no earlier than next year.

Housing starts dipped 3.4%, and were 26% lower than in May 2006. All regions reported year-over-year declines, but monthly data varied. In the Northeast, starts increased by 0.9% month-over month, but were down 20.6% compared to May 2006. In the West, starts were down 12.1% from April and 33.3% from a year earlier. In the Midwest, starts increased by 9.1% month-over-month, but were nevertheless down 23.2% year-over-year. In the South, single family starts declined 3.4% on a monthly basis and 24.2% from May 2006.

All this comes to say that monthly fluctuations of 1-2%, whether up of down, do not change the bigger picture. Currently demand for housing is exceptionally low, due to a number of reasons, and naturally this is dragging construction down. As long as inventories – and home prices – remain high, construction will not show any improvement.