Homebuyers contending with a lack of homes for sale got some relief last month as builders broke ground on more houses and ramped up their future development plans.
Renters, meanwhile, should also see some relief on rental prices as a wave of new supply hits the market.
New construction of both single and multi-family units jumped 21.7% to a seasonally adjusted annual rate of 1.631 million units in May, according to the Census Bureau Tuesday, from April's revised rate of 1.340 million. That was 5.7% above a year ago and higher than the 1.400 million units economists surveyed by Bloomberg had predicted.
Permits to build increased 5.2% to an annualized rate of 1.491 million units in May from a revised 1.417 million the previous month, with increases in applications on the single-family and multifamily sides. The figure came in higher than the Bloomberg consensus expectation of 1.425 million.
The persistent shortage of homes for sale has been a challenge for buyers, who have increasingly turned to new construction. That trend is a boon for homebuilders and has brightened their financial outlook for the year.
"The housing market has continued to normalize and recover as buyers have become more comfortable with higher mortgage rates," Lennar Corp. (LEN) Co-CEO Richard Beckwitt said last week on the builder's earnings call. "Inventory levels in the resale and new home market propelled demand for available new homes, and we offered a combination of attractive pricing and compelling mortgage rate programs to capture that demand."
Single-family housing starts in May jumped 18.5%% from April to a seasonally adjusted annual rate of 997,000. Building permits for single-home construction rose to a seasonally adjusted annual rate of 897,000, up 4.8% from April's revised rate of 856,000.
New construction has become a key part of today's housing market. More than a third of homes on the market this spring were new construction, the National Association of Home Builders estimated. That share is historically around 13%.
The shortfall of resale properties — largely because homeowners don't want to give up their current low mortgage rate for one in the mid-6% range — has buoyed confidence among builders, which finally turned positive in June. Builders also were able to cut back on the number and size of price reductions.
"With such limited resale inventory, spec housing fills a significant gap in supply. We expect that specs will continue to comprise between 30% and 40% of our sales for the foreseeable future," Toll Brothers (TOL) Chairman and CEO Douglas Yearley said late last month in the luxury homebuilder's earnings call. "The more stable environment has allowed us to increase price in more than half of our communities."
On the multifamily side, starts in May soared 28.1% to a seasonally adjusted annual rate of 624,000 from 487,000 in April. Building permits for multifamily construction rose 7.8% to a seasonally adjusted annual rate of 542,000 from 503,000 in April.
More rental supply is scheduled to come online in the second half of this year, with the number of newly built units reaching the highest level since the 1980s, according to RealPage.
“We're going to deliver more supply than what we can realistically absorb,” Carl Whitaker, director of research and analysis at RealPage, previously told Yahoo Finance.
That's good news for renters who are finally getting a reprieve from skyrocketing rents during the pandemic. The median asking rent dropped to $1,995 in May, down 0.6% from a year ago, Redfin reported this month, the sharpest annual decrease since March 2020.
"Rents have cooled in part because the number of rentals on the market has grown, giving landlords less leeway to hike prices because they’re grappling with a rise in vacancies as renters get more options to choose from," Lily Katz, Redfin's data journalist, wrote.
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Janna Herron is the personal finance editor for Yahoo Finance. Follow her on Twitter @JannaHerron.
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