U.S. Housing Starts Decline in April, Permits Beat Expectations

U.S. housing starts declined by 2.8% in April to a seasonally adjusted annual rate of 1.465 million, a figure that still surpassed the consensus estimate of 1.410 million. Despite the monthly decrease, starts were up 4.6% compared to a year ago. This suggests that while there was a dip from the prior month's surge, the pace of construction remains relatively strong, marking the fastest rate outside of March in over a year.

The April decline was entirely attributable to a 9.0% drop in single-family starts, which are now down 2.4% over the past year. In contrast, multi-unit starts saw an increase in April and have risen 19.7% over the last twelve months, accounting for the overall yearly gain in housing starts. This trend highlights a continued bifurcation in the housing construction sector, with multi-unit developments driving much of the recent growth.

Looking further down the pipeline, new building permits rose by 5.8% in April to an annual rate of 1.442 million, exceeding the projected 1.384 million. However, similar to starts, this strength was primarily due to a 21.8% jump in multi-unit permits. Single-family permits, which declined 2.6% in April to an eight-month low, are down 5.5% over the past year. This indicates that while overall building intentions are up, the single-family segment continues to face headwinds.

Homebuilders have adapted to sluggish activity by prioritizing project completions. Completions increased by 4.8% in April to a 1.449 million annual rate, though the overall trend has been slowing, with a 2.0% decrease over the past twelve months. Despite this, completions have outpaced starts in eight of the last twelve months, leading to an 8.5% reduction in the total number of homes under construction compared to a year ago. Historically, such declines have been associated with housing busts; however, a persistent under-supply of homes since 2007, with the exception of the COVID period, may nonetheless keep national average home prices elevated.

The challenging environment for builders is reflected in the National Association of Home Builders (NAHB) index, which improved to 37 in May from 34 in April. Still, a reading below 50 indicates that more builders view conditions as poor rather than good, marking the 25th consecutive month this has been the case. In other housing market news, pending home sales, which represent contracts on existing homes, rose 1.4% in April, following a 1.7% increase in March, suggesting a potential rise in existing home sales in May. Meanwhile, the Philadelphia Fed manufacturing index surprisingly dropped to -0.4 in April from +26.7 in March. On the labor front, initial jobless claims fell by 3,000 to 209,000 last week, while continuing claims rose by 6,000 to 1.782 million, suggesting ongoing job growth.

Key terms:

1. **Housing Starts**: An economic indicator that measures the number of new residential construction projects started during a specific period. It is reported as a seasonally adjusted annual rate.

2. **Building Permits**: An economic indicator reflecting the number of permits issued for new construction, signaling future construction activity.

3. **Seasonally Adjusted Annual Rate (SAAR)**: A method used to adjust economic data to remove seasonal fluctuations and express it as if that annual rate of activity occurred constantly for a year.