- U.S. housing starts fell by 9.5% to 1.57 million units (annualized) in April from a downwardly-revised 1.73 million units in the month prior. The outturn came in below market expectations, which called for a decline to 1.71 million units. Looking past the month-to-month volatility, starts have trended near the 1.6 million mark since December.
- The decline was concentrated in the single-family segment, where starts fell by 13.4% (or 164k) to 1.09 million units. Starts in the smaller, more volatile multi-family segment, meanwhile, rose by 0.8% to 482k units, adding to the 26.5% gain in the month prior.
- Permitting activity was nearly flat, rising by 0.3% to 1.76 million in April. Single-family permits fell by 3.8% to 1.15 million units, but this was offset by multifamily permits, which rose by 8.9% to 611k units.
- Homebuilding activity was mixed across the regions. The Midwest recorded a sharp decline of 34.8% in housing starts, while the South declined 11.5%. On the other hand, starts improved by 9.0% in the West and 6.2% in the Northeast.
Key Implications
- A pullback in homebuilding activity in April was expected given the outsized (20%) gain that occurred in the month prior. The flat trend near the 1.6 million mark that has developed over the last several months is solid, but nothing to write home about.
- A confluence of factors suggest that homebuilding should resume a more positive trend in the months ahead. Indeed, as more Americans get vaccinated, the reopening of the economy and the continued healing of the labor market will lend additional support to housing demand. Meanwhile, alongside this improving demand environment, a dearth of inventory, which sits at a record low when it comes to existing homes, will continue to encourage the building of more homes in the months ahead.
- Still, given that home prices continue the rise at a fast (double-digit year-over-year) clip, the affordability channel will bear close watching. Rising input costs, such as for lumber (whose sharp increase in price over the past year is adding roughly $36,000 to the average price of a new single-family home according to NAHB), pose an added challenge. Coupled with an upward trend in mortgage rates, affordability challenges are likely to become more binding in the quarters ahead. This will act as a headwind and is likely to limit the upward trajectory in homebuilding.
