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Today’s data in the US showed that Housing Starts rose 5% in May (above the 1.4% increase of market consensus) while Building Permits fell 4.6% (vs -1.4). Analysts at Wells Fargo, point out that May’s increase was led by a surge in homebuilding in the Midwest.

Key Quotes:

“Housing starts rose more than expected in May, climbing 5 percent to a 1.35 million-unit pace. Both single-family starts (+3.9 percent) and multifamily starts (+7.5 percent) rose in May. Permits fell, however, dropping 4.6 percent to a 1.30 million-unit pace from an upwardly revised 1.36 million-unit pace in April.”

“Given that so much of May’s increase was in the Midwest, there may be a temptation to downplay the improvement in the headline number.”

“Rising prices for lumber and other building materials are also causing many smaller homebuilders to delay projects until later this year, when lumber prices should ease somewhat.”

“Starts had surged earlier this year, however, and saw less of a pick up this spring than they typically do, resulting in a seasonally-adjusted decline. On a year-to-date basis, housing starts are running 22.4 percent ahead of their year-ago pace.”