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

U.S. housing starts decreased by 2.8% in April, reaching a seasonally adjusted annual rate of 1.465 million units. Despite the decline, this figure exceeded the consensus expectation of 1.410 million. Total starts have increased by 4.6% compared to a year ago, reflecting a mixed picture for the housing market.

The downturn in April was primarily driven by a 9.0% drop in single-family home starts, which are down 2.4% over the past year. In contrast, multi-unit starts saw an increase in April and have risen by a substantial 19.7% over the last twelve months, indicating a shift in construction focus. This suggests that while overall homebuilding activity has seen some growth, it is largely propelled by the multi-unit segment.

Looking ahead, new building permits, a key indicator of future construction, increased by 5.8% in April to an annual rate of 1.442 million, outperforming the consensus estimate of 1.384 million. However, similar to starts, this growth was concentrated in the multi-unit category, which surged by 21.8%. Permits for single-family homes declined 2.6% in April to an eight-month low and are down 5.5% year-over-year, reinforcing the trend of greater activity in multi-unit developments.

Home completions rose 4.8% in April to an annual rate of 1.449 million. Despite this monthly gain, completions have shown a slowing trend, down 2.0% over the past year. Notably, 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. While historically such declines have been associated with housing busts, a persistent undersupply of new homes since 2007 is expected to keep national average home prices elevated.

Sentiment among homebuilders remains subdued, with the NAHB index, a measure of builder confidence, rising to 37 in May from 34 in April. 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 news, pending home sales, which represent contracts signed for existing homes, increased by 1.4% in April, following a 1.7% rise in March. This suggests a potential uptick in existing home sales, which are recorded at closing, in the coming month.

Key terms:

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

2. **Building Permits**: Official authorizations issued by a local government agency that must be obtained before construction or renovation of a building can begin, serving as an indicator of future construction activity.

3. **NAHB Index**: The National Association of Home Builders/Wells Fargo Housing Market Index, a survey that measures the pulse of the single-family housing market, providing a gauge of homebuilder confidence.