U.S. housing starts gave back their March gains in April, falling 3.7% to 1.287 million units. Permits were also down, but to a lesser extent (-1.8%).
The drop in headline starts was driven by the volatile multi-family component (-11.3%). April marks the fourth month in a row of double-digit moves in multi-family housing starts. Looking through the month-to-month swings, multi-family starts remained strong after a period of weakness in mid-2017, and are up 19% versus a year ago.
Single family starts were basically flat (+0.1%). But, much like multi-family starts, still show a steady upward trend, rising 7% versus a year ago. Permits for single-family homes were up 0.9% in April, but are below their recent highs seen over the winter months.
Housing starts were down in most regions. The Northeast (-8.1%), Midwest (-16.3%) and the West (-12.0%) all fell, while the South (+6.4%) bucked the trend. Activity in the South was particularly strong, driven by a 52% gain in multi-family units.
Key Implications
What comes up, must come down. Following a strong rebound in March, housing starts have retreated in April, giving up all of the last month’s gain. Some consolation in this otherwise disappointing print can be found is the fact that the decline was entirely due to the lower starts in the smaller and more volatile multifamily sector, while the single-family starts have held relatively flat on the month, and were up 7.2% on a year-over-year basis.
Looking through the monthly volatility, the trend in the forward-looking permits data is still positive. There are headwinds to homebuilding activity, including labor shortages in the construction industry, rising building material costs and a lack of buildable lots. But, homebuilder sentiment did take a tentative step higher in May after some weakness over the winter, suggesting these barriers are not insurmountable.
We expect housing starts to continue to gain ground through 2018, supported by positive fundamentals such as low unemployment and healthy wage increases, which are expected to offset higher mortgage rates. At the same time, tight inventories and rising prices will continue to support homebuilding.
