U.S. Housing Starts Decline by 2.8% in April, Still Exceeding Forecasts

U.S. housing starts decreased by 2.8% in April to a seasonally adjusted annual rate of 1.465 million units, outperforming the consensus forecast of 1.410 million. Despite the monthly decline, starts are up 4.6% compared to a year ago. The reduction in April was exclusively driven by a fall in single-family starts, while multi-unit construction saw an increase.

Over the past year, single-family starts have seen a 2.4% decrease, in contrast to a significant 19.7% rise in multi-unit starts. New building permits, a forward-looking indicator for construction, increased by 5.8% in April to an annual rate of 1.442 million, also exceeding the consensus estimate of 1.384 million. Year-over-year, permits for single-family homes are down 5.5%, but multi-unit home permits have risen by 9.2%.

The April data indicates a stronger-than-expected pace of homebuilding, especially considering the decline from a marked surge in March. The 1.465 million annual rate observed in April represents the fastest construction pace in over a year, excluding the previous month. However, the entirety of April's decrease was attributable to single-family homes, which dropped 9.0% for the month and are down 2.4% over the last year. The overall 4.6% year-over-year increase in housing starts is solely due to the volatile multi-unit category.

Further down the pipeline, a similar pattern emerges. The 5.8% rise in building permits in April, which surpassed expectations, was predominantly due to a 21.8% jump in multi-unit permits. Single-family permits, conversely, declined 2.6% in April to an eight-month low, now down 5.5% from a year ago. Homebuilders have been trying to navigate sluggish activity by focusing on project completions, which rose 4.8% in April to a 1.449 million annual rate. However, completions have been slowing recently, down 2.0% in the past twelve months. Despite this trend, completions have outpaced starts in eight of the past twelve months, leading to an 8.5% reduction in the total number of homes under construction compared to a year ago.

While such declines in homes under construction have historically been linked to housing busts and falling home prices, the U.S. has experienced a consistent undersupply of new homes since 2007, with the brief exception of the COVID-19 pandemic. This suggests that national average home prices may remain elevated, even with potential headwinds for housing starts. The challenging environment for builders is reflected in the May NAHB index, a measure of homebuilder sentiment, which increased to 37 from 34 in April. A reading below 50 indicates that more builders view conditions as poor rather than good, a trend that has persisted for 25 consecutive months.

In other housing news, pending home sales, which track contracts on existing homes, advanced 1.4% in April, building on a 1.7% increase in March, suggesting a potential rise in existing home sales in May. On the manufacturing front, the Philadelphia Fed index, reflecting factory sentiment in the region, unexpectedly declined to -0.4 in April from +26.7 in March. In labor market news, initial jobless claims fell by 3,000 last week to 209,000, while continuing claims increased by 6,000 to 1.782 million, indicating continued job growth into May.

Key terms

1. Housing Starts: An economic indicator that measures the number of new residential construction projects on which ground has been broken during a given period.

2. Building Permits: An authorization from a local government agency to proceed with a construction project, serving as a leading indicator of future construction activity.

3. NAHB Index: A gauge of homebuilder sentiment compiled by the National Association of Home Builders, reflecting their perception of current sales, prospective buyer traffic, and sales expectations for the next six months.