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Thursday, June 28, 2012

Housing Starts Disappoint in May, but Permits Soar

Housing starts were weaker than expected in
May, increasing 29% y/y to 708K units (SAAR) but came in below consensus expectations of 722K.
Starts slipped 5% m/m from an upwardly revised reading of 744K units in April vs. 717K units as
previously reported. We note the dataset is prone to heavy revision with a historical margin of error
near 20% due to a small sample size, with upward revisions ranging from +4-7% in the last two
months. All told, while this month’s headline reading was relatively disappointing, it was driven
largely by weakness in multifamily construction. However, single-family starts improved on both a
sequential and y/y basis. Lastly, forward looking permits climbed to the highest level since Sept
2008. Permits increased 8% m/m and 25% y/y to 780K units, well ahead of consensus expectations of
730K units (flat m/m). The data indicated a 26% y/y improvement in single-family starts to 516K
units, a five-month high. Meanwhile, multifamily starts increased 32% y/y. The 3.2% sequential
improvement in single-family starts was considerably better than historical sequential improvements
which tended to average +40bps since the data was first recorded. Meanwhile, multifamily
underperformed meaningfully, slipping 24% on a sequential basis. Performance was mixed on a
regional basis.

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